Threaten Australian gas companies with export limits to rein in domestic prices, former ACCC boss says
Former competition watchdog boss Rod Sims says the Albanese government could solve the energy price crisis by threatening gas companies with limits on how much they could export, arguing it would prompt the industry to lower prices for Australian consumers and businesses.
Sims said the high gas spot price triggered by Russia’s invasion of Ukraine was the key issue driving an expected 20% increase in retail electricity prices late this year and a 30% jump next year outlined in Tuesday’s federal budget.
Gas-fired electricity is the most expensive form of power generation and the major factor in the wholesale price passed on to consumers.
Sims, an ex-chair of the Australian Competition and Consumer Commission, said the federal government should pressure the owners of the country’s three east coast gas export plants, all based in Queensland, to sell fuel on the local market at a level that met demand and at a price of less than $10 a gigajoule – less than half this year’s spot prices of more than $20.
He said that pressure could come from the government making clear it was prepared to impose export controls – preventing companies from selling more offshore than had been contracted.
Sims said the gas producers had undertaken that the Gladstone export facilities would not affect the domestic price when they started operating in 2014, and Australians paid the highest gas price among exporting nations “by a long way”.
“This is their obligation,” Sims told Guardian Australia.
“It just needs the threat and I think they will act. My view is this intervention [by the government] would do as much as we can sensibly do to solve the problem – and it would solve the problem.”
Senior ministers are working with the ACCC, the Australian Energy Regulator and departmental officials on options for regulatory intervention in both the gas and electricity markets.
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The government on Wednesday asked the ACCC to review a voluntary code of conduct covering the gas industry and to recommend options to toughen it. Gas industry representatives believe Labor is considering making the code mandatory and extending the powers of the Australian Energy Market Operator to govern market behaviour.
The federal treasurer, Jim Chalmers, has said the government was concerned about gas and electricity price hikes and was considering a “suite of regulatory interventions”.
Speaking at the national press club on Wednesday, Chalmers said high prices were “smashing industry”. He left open the possibility of supporting a gas price trigger that would divert supply to the domestic market.
The treasurer was cool on the idea of cash payments to consumers – advocated by the New South Wales treasurer, Matt Kean – on the grounds they risked hurting struggling families more by further driving up inflation.
The energy and climate program director with the Grattan Institute, Tony Wood, said the government had two realistic options to disconnect domestic and international gas prices.
The first was a windfall tax on super profits, which the government has rejected. The second was to ask the ACCC to use a heads of agreement between the government and the industry to set a “fair reference price” not affected by spikes on international markets. This second option would effectively be a form of price capping.
Chalmers said any changes would require a “lot of consultation” with colleagues and the states would need to be involved as they hold much of the regulatory power. Energy ministers are due to meet in Melbourne on Friday.
Both the Victorian and South Australian governments have indicated plans to take more control of energy assets. The Andrews government announced it would revive the publicly owned State Electricity Commission to build some renewable energy and the South Australian premier, Peter Malinauskas, on Wednesday said he was considering “all options” including reverting to direct state ownership.
The sharp rise in electricity prices was underlined in an Aemo report on Thursday. It showed wholesale electricity spot prices across the eastern states in the September quarter were more than triple those of a year earlier. They averaged $216 a megawatt-hour.
But they were down 19% from the record $264/MWh paid in the June quarter when scheduled and unexpected outages at coal plants triggered the suspension of the electricity market.
Gas is underpinning recent high prices. Average prices for fuel on the east coast were $26 a gigajoule, down about 9% on the June quarter but still 142% more than the September quarter of 2021.
Renewables continued to set fresh records including supplying 64.1% of generation on 18 September.
Looking ahead, Aemo found wholesale electricity prices in the eastern mainland states next year were now expected to be 20% higher than forecast in the June report.
The price of contracts for supply in 2023 averaged $202/MWh, up from $168/MWh three months earlier. NSW was the most expensive, averaging $232/MWh, and Victoria the cheapest at $157/MWh.
Aemo said the market was expecting wholesale energy costs to be higher next winter than over summer because of the scheduled closure in April of three remaining units at the Liddell coal-fired power station in the Hunter.
Labor said before the election that its modelling showed its policies would cut electricity bills by $275 by 2025. The Coalition has said the increase in prices was evidence of a broken promise.