Election 2022: Big users hit hard by energy price hike

Wholesale power prices on the spot market for NSW and Queensland have averaged more than $200 per megawatt hour for the five week period since April 1.

Record international coal prices have contributed to high power costs in Australia.

NSW manufacturers have warned they face having to shut down operations due to soaring wholesale electricity and gas prices, with big users reliant on the spot market reeling from the cost hike.

Wholesale power prices on the spot market for NSW and Queensland have averaged more than $200 per megawatt hour for the five-week period since April 1, conditions which are unprecedented according to consultancy Energy Edge, and triple levels from 2021.

A quarter of coal capacity including some of Australia’s largest power generators are out of service or undergoing maintenance, piling pressure on the market, while near record international thermal coal prices have also led to the fossil fuel supplying less of the national electricity market than usual.

Domestic gas prices on the east coast have also soared with the fuel stepping in to fill the gap while international demand for LNG is also squeezing the market.

“The market is very scarce on energy and the current prices represent that scarcity, if at extreme levels,” Energy Edge managing director Josh Stabler said.

A NSW magnesium producer, Causmag International, said it was unable to secure contracted gas and is now paying over the odds for both gas and electricity with the risk it will have to shut its doors if current conditions ­continue.

“We are paying five times what we used to pay for gas and it is unsustainable. We are exposed to competition from products that are made in China. We cannot compete with these costs,” Causmag director Aditya Jhunjhunwala told The Australian.

The manufacturer, based in the central NSW town of Young, said it was paying more than $300 for every tonne of its product due to high gas costs.

“How are we supposed to pay for salaries and wages, electricity, diesel, insurance, rent, rates, hire- purchase expenses, and other costs and remain competitive? The natural gas expenses are nearly four times of normal levels,” Mr Jhunjhunwala said.

Most big energy users can manage their exposure to wholesale power price spikes by entering hedge contracts that lock in firm prices or signing up to contracts that lock in a specified rate.

However, Causmag said it was being quoted fixed gas costs between $10-15 a gigajoule for contracted supplies and instead opted to pay on the spot market. It points to Western Australia’s domestic gas reservation scheme as a solution with the state ensuring producers hive off a certain amount of gas for local users.

The Energy Users Association of Australia said it was concerned over the price pressures.

“Energy prices are way up and likely to stay there, mostly driven by global issues,” EUAA chief executive Andrew Richards said.

“Energy users can no longer afford to be passive observers. Those who will get through these times are the ones who become more active and take steps to manage load, reduce consumption through energy efficiency and contemplate alternative fuels.”

“Governments can have a positive impact with well-targeted programs that are end-user ­focused that will complement any actions they decide to take on the supply side.”

Power prices surged two-thirds higher in the first quarter of 2022 amid rising fuel costs, coal outages and increased demand in the latest sign of inflationary pressures hitting Australia’s economy, the Australian Energy Market Operator said on April 29.