Why are electricity prices so high in Australia?
Cost of living in Australia has never been cheap, but the ongoing rises in electricity prices is still managing to alarm many.
Electricity has risen 63 per cent on top of inflation across the last decade (Grattan.edu.au), and Australia is facing price increases of a quarter or greater in 2023.
This ongoing issue has sparked concern among citizens and policymakers alike. But what went wrong? Below we'll delve into the factors contributing to the high electricity prices in Australia, exploring both historical and contemporary aspects of the energy landscape.
1. Energy Market Structure:
Australia's electricity market is structured with a combination of private and public ownership. The National Electricity Market (NEM) operates across the eastern and southern states, fostering competition among generators and retailers. However, this competitive market structure does not necessarily translate into lower prices. There are inherent risks with privatisation - the most obvious of all being profit-driven.
That our electricity markets are not nationalised may come as a surprise to many who assumed they were. Our electricity markets have been increasingly quietly privatised, often despite representatives promising not to during election runs.
2. Aging Infrastructure:
One crucial factor contributing to high electricity prices is the aging infrastructure across the country. Australia's energy infrastructure, including power plants, transmission lines, and distribution networks, requires substantial investment to maintain reliability and meet growing demand. The costs associated with upgrading and maintaining this infrastructure are often passed on to consumers, leading to higher electricity prices. This is good segue into the next contributing factor.
Above, the Liddel power station recently closed its doors for good over failing infrastructure.
3. Network costs:
Transporting electricity is a cost most people don't consider - but it accounts for a staggering 40% of a typical household's bill.
Compared to the cost of the power you actually use, the cost of getting it to your home is approximately double.
Transporting electricity requires an assortment of infrastructure - primarily poles and wires.
Houses require conduits such as poles and wires to receive electricity from the network.
Access to electricity goes beyond these physical implements, and also necessitates a party from which to buy it. This is a service retailers provide and has been ended up being the driving force of a further 25% of electricity price rises since 2007. As noted by Grattan.edu.au, this was "not the outcome expected when retail electricity markets were opened to competition, and is the subject of further investigation by the ACCC".
4. Climate and Environmental Policies:
In the wake of bushfires and droughts, Australia's commitment to reducing carbon emissions has led to the implementation of various climate and environmental policies. The Renewable Energy Target (RET), for instance, aims to ensure that 33,000,000 MWh of Australia's electricity comes from renewable sources by 2023. While these policies contribute to the expansion of renewable energy, they can also impact electricity prices due to the associated costs of compliance and subsidies.
To sum up
High electricity prices in Australia can be attributed to a combination of factors, including:
- Aging infrastructure
- Access and network costs
- Environmentally sustainable policies
While it's easy to blame factors such as the war in Ukraine affecting supply and demand of coal for temporary price hikes, the fact remains that Australia's energy prices have been on an upward trajectory for decades. Our aging generators rely on a finite resource that is fast running out and growing more expensive in the process - coal.