How power bills and IR changes could impact borrowers
The latest inflation figures have been boosted beyond expectations because the removal of subsidies skyrocketed power prices, which then flowed onto the cost of many services.
And, the industrial relations act changed the bargaining power balance, boosting costs.
The Reserve Bank may still lower rates this week but a lot more power price rises are in the pipeline and so longer-term mortgage holders are going to suffer interest rates higher than those would have occurred with a low-cost energy emissions strategy.
Among the major power users, aluminium smelters, led by the Rio Tinto smelter near Newcastle, will simply not be economic unless the high-cost renewable power is subsidised or coal becomes the long-term power source.
But, our aluminium smelters are merely a forerunner of the fate destined for a whole range of industries that process and manufacture goods and need globally competitive power prices.
By the time the next federal election takes place this will be evident to most of the community, although the government will use unsustainable subsidies to mask the situation.
Liberal MP Andrew Hastie has started on the task of making sure the nation understands what is going to happen when wind and solar are used as a base load power to achieve high emission targets.
Accordingly, Hastie hits the government’s woke-style high-cost energy policies and is spruiking the looming renewables disaster.
He believes that if we have competitive energy pricing we can develop specialised product design and manufacturing.
His views are opposed by both the government and parts of the Coalition.
But, stunningly, Hastie has a ‘supporter’ in South Australian ALP Treasurer Tom Koutsantonis who warns, “job destroying, woke policies are sending our young people into the ranks of the hard right”.
Hastie believes that his job creating policies will mean that, instead of going to the hard right, young people and their parents will vote for the Coalition.
In my view, the government has made fundamental mistakes because many of the installations in our solar, wind and power transmission network are owned by private sector developers under contracts which guarantee returns even if capital costs rise.
The capital costs have exploded, so these contracts are now revenue bonanzas. Those higher developer revenues will require increased power prices or unsustainable subsidies.
Wind and solar installations produce enormous amounts of cheap power when the wind is blowing and the sun is shining. But, they produce virtually no power during the night if there is no wind.
And over-reliance on renewables can cause system breakdowns, as Spain discovered. Therefore there must be a backup system via batteries, hydro or gas.
Current technology makes big batteries expensive and, as we saw with Snowy Two, hydro can cost vast amounts of money.
Gas driven power is the only viable, flexible generation alternative.
Meanwhile, we will be relying on our old coal plants for much longer than would have been necessary, had we earlier understood the future requirement for gas.
But, despite the looming rise in domestic gas usage, there is a strong community desire in Australia to reduce emissions.
Australia’s greatest opportunity to absorb carbon at low cost is by using the ability of plants to use photosynthesis to absorb carbon and release oxygen. The carbon can be stored via timber in buildings (based on renewable forests so every tree felled is replaced) and via the deep roots of saltbush and similar vegetation that can be grown in arid land.
Both storage systems generate profits. Builders pay for the carbon stored as timber and the saltbush surface protein leaves can be sold to China and other markets. Vegetation with carbon absorbing roots can also be part of regenerative farming.
At the moment there is widespread vigorous debate about forecasting emission levels. We know from the Business Council of Australia the current government plan will cost around$500bn, which will ravage the economy.
In my view every future target that is established needs to come with a cost estimate. Currently, we ignore the costs, preferring just to sell the target itself.
The Coalition should not get into that disaster game and demand all forecasts have a realistic cost attached them.
And the business of targeting is made more complex because WA has a different way of calculating its emissions and Queensland is sticking with coal. That leaves NSW, Victoria and SA to bear the domestic burden.
And, unless there is a change in government next year it looks like Victoria is going to lead the way in reducing emissions using the highest possible cost method, therefore eliminating vast employment areas.
Yet, Victoria, near Sale in East Gippsland, has potentially the lowest-cost gas deposits in Australia, which also release water to accelerate emissions reduction via vegetation.
But, about six wells need to be drilled to ensure the vast reserves that have been internationally estimated will flow. Victoria also has gas near the South Australian border.
Outside Victoria there is non-contracted gas in NSW at Narrabri, in Queensland in the Bowen Basin and in the Northern Territory at Beetaloo.
The actual impact of the higher power prices on households will be neutered if there is a rush to install solar panels and batteries on domestic houses, but that involves outlays by individuals to counter government-imposed costs.
Many in the Coalition have not yet understood the disaster emerging in the energy sector and the opportunity it presents.
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If the Reserve Bank does not lower interest rates this week it will mean mortgage holders will suffer from the impact of the combination of Australia’s high-cost industrial relations and energy strategies. And it will keep happening.