Heat is on to plug energy crisis in Australia

NSW and Queensland residents have this week been urged to conserve power and the east-coast wholesale electricity spot market has been suspended.

Experts at The Australian National University (ANU) say the current situation is, in part, a failure of policy and politics.

Why is Australia facing an energy crisis?

The war in Ukraine has fuelled a rise in fossil fuel prices that energy economist Professor Paul Burke says won't be fully reversed any time soon. This has been coupled with domestic issues such as unreliability of ageing coal-fired power stations.

According to Burke, Australia has been poorly served by a failure to introduce a stable and forward-looking climate and energy policy. Burke also argues that we could have done more to reduce consumer exposure to high energy prices.

"If we had moved more ambitiously to boost energy efficiency, we would not need to be using so much gas and electricity. If we had moved more rapidly to electric vehicles, fewer consumers would be exposed to currently high petrol prices."

Another issue is that tax settings have meant that the current large windfall profits of fossil fuel producers in Australia mostly flow overseas.

"Unfortunately we do not capture as many of the benefits from high prices for our fossil fuel exports as other major fossil fuel exporters such as Norway and Qatar," Burke says.

How much have prices risen?

June data from the Australian Energy Emissions Monitor report published by the ANU Institute for Climate, Energy and Disaster Solutions provides a timely analysis of the energy price crisis in Australia.

The report shows wholesale prices for electricity, gas and petroleum products at record or near record levels at the beginning of June.

"The ultimate reason for these high prices is the reduced global supply of crude oil, natural gas and, to a lesser extent, coal, resulting from the embargoes on exports of these fossil fuels from Russia," author and Honorary Associate Professor Dr Hugh Saddler says.

The Australian Energy Market Operator (AEMO) has said we need to get working on 10,000 kilometres of new transmission lines and major investments into utility-scale renewables to work towards a stable, low-emission grid.

Among more short-term responses, state and territory energy ministers have agreed to give AEMO new powers to purchase and store gas to help avoid shortages.

Are all parts of Australia equally impacted?

If you're in Western Australia, you could be partly excused for wondering what all the fuss is about.

The state has maintained a reservation policy where a quantity of gas equal to 15 per cent of exports needs to be retained for its own market. While leading to additional emissions from gas in the local market, the approach does provide some insulation against global price spikes.

Those living in the ACT have also been partially insulated against the rise in electricity prices due to the territory's 100 per cent renewable energy target. A slight reduction in retail electricity prices has recently been announced for the territory.

What are the solutions?

Professor Burke says there's no time like the present to accelerate the move to renewables-based energy systems that are less exposed to fossil fuel price shocks.

"Australia has substantial potential to bring a lot more solar and wind into the system. Solar and wind help to place downward pressure on average wholesale electricity prices."

"In the short run, an additional option is for cash transfers and tax relief to be provided to low-income households to help cushion the effects of high energy prices," he says.

"The higher energy prices seen now will also be encouraging energy efficiency improvements, adoption of electric vehicles and switching to renewables. These are the genesis for reduced exposure to this issue in the future. However, these responses take time."