Energy experts question need to extend coal price cap

Experts say there is no longer a strong case to extend the $125 cap, as Labor faces pressure over how much in rebates has gone to generators.

Nationals Senator Matt Canavan. Picture: NCA NewsWire / Martin Ollman

Leading energy economists suggest there is no longer a strong rationale to extend Labor’s coal price cap beyond the middle of 2024, with Nationals senator Matt Canavan asking the Energy Department to reveal how much taxpayer money had been spent compensating generators under the market intervention.

Victoria Energy Policy Centre director Bruce Mountain told The Australian coal spot prices “have dropped greatly … so I should not think it will mean much to the coal generators to extend the cap and compensation”.

Professor Mountain said Labor’s cap on the price of coal used for electricity generation at $125 a tonne had “passed its use-by date”, while Grattan Institute energy program director Tony Wood said the government should conduct sensible and proper consultations before making any decision.

However, he said moderating short-term prices would appear to undercut the need for any extension, with Jim Chalmers on Tuesday saying no decision had been taken to extend the coal price caps, scheduled to conclude on June 30.

“We’ve worked with state governments on the coal caps,” the Treasurer said. “There hasn’t been a decision taken to extend those beyond the middle of the year.

“We know from the ABS that electricity prices would have been much higher were it not for our combined efforts. The ABS has made it very clear that the rebates and the caps took some of the sting off these price rises.”

The removal of the price cap is expected to hamper Origin Energy, given Australia’s largest electricity and gas retailer has been able to lower costs of generating electricity from its Eraring coal power station

Origin in 2022 accelerated plans to shut Eraring in 2025 after the plant struggled to remain profitable due to high costs and volatile wholesale prices amid a rapid rise in solar generation.

The introduction of the cap of $125 a tonne of coal allowed Origin to recoup fees for buying coal, returning Eraring to unexpected profit levels in 2023. AGL Energy has historical supply agreements for Bayswater coal-power station in NSW below the $125 cap.

In a submission to a parliamentary inquiry on cost of living that was revealed early last year, the Department of Climate Change and Energy estimated the combined cost of coal generator rebates to the commonwealth, NSW and Queensland governments would be “in the order of $1.5bn to $2bn, with the commonwealth paying a 50 per cent share”.

Senator Canavan, who says the cap should not be extended, told The Australian he would write to the department ahead of the committee’s hearings in February to ask how much had been spent on generator rebates. “Potentially spending $2bn is not lunch money. The Australian taxpayers deserve to know how much they did give to multinational coal companies through the government’s ineffective coal price cap.”

A spokesman for Climate Change and Energy Minister Chris Bowen said it was “quite incredible that (Peter) Dutton and the LNP are proud of voting against an intervention that shielded Australians from the worst of the worst global energy shock in 50 years – including voting against billions of dollars in direct bill relief for Australian families and small businesses”.