The Federal Energy Price Relief Plan has passed in Parliament, but despite aims to reduce price spike impacts, the energy industry has concerns for investor confidence and warns higher prices could happen in the future regardless.
The Bill will see the Federal Government contribute to costs with a 12-month emergency price cap, with gas prices capped at $12 per gigajoule on new wholesale gas sales by east coast producers, and coal used for electricity generation capped at $125/t for New South Wales and Queensland. The Bill will undergo funding arrangements and final details in the National Cabinet, and is estimated to be settled by March 2023.
Combined, these gas and coal measures are estimated to:
- Dampen predicted gas price increases by two percentage points in 2022-23 and 16 percentage points in 2023-24
- Reduce the impact of forecast electricity price increases of 36 per cent in 2023-24 by 13 percentage points
- This should prevent a $230 increase that the average Australian household would have seen if these actions were not taken
- Reduce expected inflation in 2023-24 by around an estimated half percentage point
The Federal Government will also establish an Energy Bill Relief Fund with up to $1.5 billion to deliver relief directly to electricity bills.
Federal Government support will be contingent on the relevant State or Territory matching funding on a dollar-for-dollar basis.
The Federal Government hopes the Fund will provide targeted and temporary support, provide hundreds of dollars of additional bill relief to eligible Australian families and small businesses, and help shield them from the worst impacts of rising global energy prices.
The National Cabinet agreed to finalise the design and delivery of the Energy Bill Relief Fund based on the following principles:
- Bill relief will be funded between the Commonwealth but will be contingent on the relevant State or Territory matching funding on a dollar-for-dollar basis
- Contributions will constitute additional support above and beyond any existing or announced schemes
- Bill relief will be targeted to households receiving income support, pensioners and Commonwealth Seniors Health Card holders, Family Tax Benefit A and B recipients and to small business customers of electricity retailers
- Relief be provided as a credit directly on recipients’ power bills
The here and now
Prime Minister Anthony Albanese said the plan was “responsible, targeted and temporary” and “designed to provide all Australians with a buffer in unprecedented times”.
In a speech to the Federal Parliament on 15 December 2022, ahead of the Parliament vote, Mr Albanese said the plan combined immediate action and future reform.
“It recognises the challenge of the here and now, as a result of Russia’s illegal invasion of Ukraine,” Mr Albanese said.
Mr Albanese said that whilst the Government needs to act now to deal with the current crisis, it must also “look to the medium-term to make sure we secure our energy future”.
Mr Alabanese said the work regarding the Rewiring the Nation plan and the National Reconstruction Fund will ensure Australia can add Australian-made renewable energy to the grid and create a secure energy system, reducing price inflation in the future.
Industry says complex arrangements ahead
Australian Energy Council Chief Executive, Sarah McNamara, said final details and funding arrangements are expected to be settled by the National Cabinet by March 2023.
Ms McNamara said that the fuel price caps, which form part of the bill, were extremely difficult to get right and would also take time to filter through to end users.
“As we have said we can understand and appreciate the intent of the government in seeking to put downward pressure on prices by reducing generator costs, but price caps should only be used as a temporary tool and won’t bring immediate relief,” Ms McNamara said.
“Regulated electricity prices have already been set through to 30 June 2023 and the next Default Market Offer (DMO) won’t be finalised until May next year.
“Retailers and generators enter contracts to hedge their load. This means that many of the contracts for the next 12 months have already been settled on the basis of higher prices.”
Unprecedented intervention – a warning
The Australian Petroleum Production & Exploration Association (APPEA) said capping prices and establishing unprecedented interventionist powers – including ongoing regulation of gas prices – should be a warning to businesses across the economy that the Government would step in and regulate without notice.
APPEA said that whilst the laws give the Federal Government command and control of the market, it fails to address the underlying causes of higher domestic gas prices – declining supply and increasing demand for gas for power generation.
APPEA said these measures would also smash investor confidence and undermine Australia’s reputation as a secure and stable investment destination.
The upstream oil and gas sector employs 80,000 Australians and has invested more than $400 billion in projects. A further $27 billion has been committed in the past 18 months.
These investments are delivering essential energy for Australian households and manufacturing, but the policy uncertainty created by these ill-considered interventions puts future investment at risk.
APPEA Chief Executive Samantha McCulloch said the industry had worked with the Federal Government to guarantee supply into the east coast domestic gas market, including through a Heads of Agreement backed by a voluntary Code of Conduct.
APPEA said the mechanisms, agreed in September 2022, were already underpinning long-term supply contracts at competitive prices and the APPEA should have been given a chance to work to bring on new supply and reduce prices in a sustainable way, rather than reaching for approaches that unravel two decades of gas market reform.
“We share the Government’s objective of ensuring that energy prices remain affordable and support targeted relief to households and businesses. Sustained high domestic energy prices are in no one’s long-term interes,” Ms McCulloch said.
“This intervention in the market will have the opposite effect of that intended. Price caps and ongoing regulation of prices will undermine the case for investment in new supply and ultimately lead to higher prices and greater problems down the track.”
Mr Albanese reinforced the commitment made by Energy Ministers at the meeting of 8 December, to implement the long overdue Capacity Investment Scheme.
This Scheme will unlock around $10 billion of private and public sector investment in clean, dispatchable storage and generation to ensure reliable and affordable electricity supply and reduce our exposure to high coal and gas prices over the medium and long term.
