Energy prices are expensive but why? Let’s recap
Yes, there’s an energy crisis in Australia at the moment and most households have the bills to prove it! But what’s behind it? There are multiple reasons as to why the price of energy is going up, and so with the help of CommBank’s latest research, let’s recap.
What are the causes of increased energy prices?
- Elevated international coal and gas prices. As a result of the Ukraine war, many European countries have limited or banned Russia’s thermal coal imports. According to CommBank’s Sustainable Economics Report, Russia accounts for 24-26% of global cas trade, 15% of global thermal coal trade and 10-11% of global oil trade. The sanctions imposed on Russian coal have caused a supply problem and has resulted in the increase in price of non-Russian thermal coal. We’re feeling the effects of this price increase all over the world.
- Unreliable coal and gas production in Australia. Many of Australia’s biggest coal and gas plants are ageing and breaking down, and some are even marked for early closure. The wet weather we have been experiencing this year has also impacted east-coast coal production and these factors have caused an increase in the wholesale cost of electricity in Australia.
- Renewable energy generation is less reliable from May to August. According to CommBank, wind and solar power generation is typically weaker between the months of May and August. This period of weakness means that fossil fuel power has to play a larger role during these months.
- Gas prices increase due to weaker coal power and renewable energy generation. Due to the seasonal issues with renewable energy and our unreliable coal plants, gas power generation has to step up to meet the demand. The demand for electricity has also increased due to the colder weather and these factors have resulted in the increase of the price of gas.
What does this all mean for us?
Due to a combination of the reasons listed above, energy prices in Australia have increased. The magnitude of this increase was revealed by the Australian Energy Market Operator (AEMO) which recently announced that the wholesale cost of electricity has increased by 141% in the first three months of 2022, compared to the first quarter of 2021. This is a very large increase and will definitely make a difference in the price of our electricity bills this year, especially in the colder months.
What are the predictions for the future?
According to CommBank’s report, Australia’s National Electricity Market will likely see ongoing Australian winter peaks in electricity prices and these peaks will likely be exacerbated as goal generation increases. CommBank’s experts say that renewable energy options offer the best opportunity to reduce the price of electricity in the long run, however in the short term, rooftop solar will provide much needed reprieve from high electricity prices.
As a result of all of this, the light vehicle sector will have strong economic incentives to switch to electric options over the next few years, meaning that we may see an increase in electric vehicles and this may cause fuel prices to decrease.
Worried about your energy bills? There are some things you can do.
- Try to reduce electricity usage. There are small ways you can limit the amount of electricity used. For example, rug up with warm clothes in winter instead of resorting to turning on the heater, turn off appliances and powerpoints that aren’t being used and try shorter showers. If you’re interested in learning about some more steps you can take to limit your energy usage, we’ve got you covered.
- Review your energy plan. Take a look at your current energy plan and compare with other plans on the market to see if you could be saving money by switching providers. This is easier than it may sound, check out our energy home page for advice on how to do this.
- Learn more about renewable energy options. Do some research into renewable energy sources and find out if making the switch could save you money in the long term.
For more information regarding energy prices, plans and how to save money, check out our energy home page.