While the global surge in coal prices is set to significantly push up east coast electricity prices, the pain won’t be equally shared. Because of their reliance on coal exports, NSW and Queensland face higher prices than other states. And the impact is already being felt.
New research by Johanna Bowyer of the Institute for Energy Economics and Financial Analysis reveals that Victorian, Tasmanian and South Australian households will be somewhat shielded from the global coal price rise. For the two smaller states it’s because of the higher level of renewables in their energy mix. In the case of Victoria, its reliance on brown coal, which is not exported, has meant it has had the lowest average wholesale price in the first quarter of 2022.
According to Bowyer, wholesale electricity prices rose 141% in the first quarter compared with the first quarter of 2021, to $87 a megawatt hour (MWh) — reversing the down price trend until last year that was driven by the growth of cheap renewable energy. The rise was propelled by the global spike in coal prices created by Russia’s threats to, and then invasion of, Ukraine.
Newcastle thermal coal futures increased six-fold over the year to March, reaching $600 a tonne. LNG prices have increased by a similar magnitude.
Queensland and NSW are particularly exposed to high international coal prices because they rely on black coal, meaning households and businesses wear the cost of high black coal prices while miners enjoy high export revenue.
In the first quarter of the year, Queensland wholesale prices reached $150/MWh; second was NSW at $87/MWh. In South Australia the wholesale price was $71/MWh, in Tasmania $70/MWh, and in Victoria just $57/MWh.
NSW and Queensland haven’t been able to benefit from lower prices in other parts of the east coast market due to transmission capacity constraints. They have also suffered from coal-fired power generator outages, with generator availability 3% lower in the quarter.
The growing unreliability of coal-fired power doesn’t just increase prices and weigh down company balance sheets; it could lead to much earlier exits by generator owners.
As Bowyer explains: “A generator facing both reduced profitability and repairs that require significant investment to repair may not find it worthwhile to restart. This raises the prospect of unexpected exits by coal generators — which, history shows, creates a heightened level of discomfort for the Australian government.”
The only effective way to minimise the risk of higher prices and unexpected exits is to transition away from fossil fuel reliance — at the generator level and the household level. That, of course, requires a government that believes in climate science.
