Australia is currently in the throws of an energy crisis dubbed the ‘perfect storm’ by our new Federal Energy Minister, Chris Bowen. With blackouts threatening millions of Australians in the coming months, energy prices surging and supply issues running rife along the east coast, it’s looking like a dark winter ahead.
Mud-slinging appears to be another hallmark of this current crisis, with both political parties rushing to assign blame. From accusations of ill-preparedness to allegations of a ‘bin fire’ inherited from the former government, one thing both sides can agree on is that we’re facing an energy catastrophe.
From early January to late May, the NSW wholesale electricity price went from an average of $77 per megawatt-hour to a whopping $320 per megawatt-hour. Frankly, it’s unsustainable.
So, what spiked the energy crisis?
Some say the gas supply crunch ultimately comes down to the deregulation and privatisation of the energy market in 1995-96. However, there are certainly some recent catalysts we have to thank. Namely a combination of geological events, extreme weather phenomena, power fire station outages, and surging demand.
This combination is precisely what Minister Chris Bowen has dubbed the ‘perfect storm’.
The impacts of the Ukraine war
Russia is one of the biggest energy exporters in the world; it supplies 40% of Europe’s natural gas. However, as soon as the war with Ukraine began, immediate sanctions were placed on Russian oil and gas, forcing many countries to seek sources of energy elsewhere. Including here in Australia. And as demand rose, so did prices.
Unpredicted weather phenomena
Naturally, a key element of this perfect storm is unexpected weather. Cloudier than normal conditions are reducing solar generation, flooding has impacted supply from coal mines, and increasingly cold temperatures are putting enormous pressure on gas-fired power plants. In fact, for the first time in more than two decades, Sydney has recorded temperatures consistently below 19 degrees in the first two weeks.
Failing coal-powered generators
Coal is steadily losing popularity in Australia as the country steers itself towards a more sustainable future. Because it’s being phased out, coal-fired power stations aren’t getting the TLC they need, particularly in New South Wales and Queensland. This is leading to generator failures which in turn kickstart the gas-powered backup generators. As a result, New South Wales and Queensland are chewing through more gas.
Unprecedented demand
Ever since the significant easing of Covid restrictions in Australia – from the September 2021 quarter onwards – energy prices have been on the rise. The nationwide return to work has sparked a surge in demand that far exceeded the supply levels that preceded it. Combine this already rising demand with plummeting temperatures, international sanctions and generator failures, and you’ve got a crisis on your hands.
So, how do we solve it?
Price caps have already come into place across five states, with the Australian Energy Market Operator (AEMO) setting the default market price at $300 a megawatt hour. Unfortunately, this triggered revised market availability from suppliers, leading to further supply shortfalls. Suffice to say, a longer-term solution is still needed.
Well, it may come as a relief to know that the government is ‘on it’.
Australia’s energy ministers recently came together to unanimously agree on an 11-point plan. Federal Energy Minister, Chris Bowen, was the first to stress that it wasn’t an instant solution, but it would however give the country the tools to weather the storm.
“[The plan is] no silver bullet, no magic answer, but material steps forward in a very positive fashion,” he told reporters following the meeting between state, territory and federal ministers.
The 11-point plan includes fast-tracking a capacity mechanism that will mean paying more to have spare energy stored; allowing the regulator to buy and store gas for a ‘crisis situation’ (like this one); and more power to enforce market transparency, ensuring energy retailers are operating in the best interests of the consumer.
The long-term solution, however, will likely involve state and territory governments intervening by directing billions of dollars into renewable energy and storage to ensure an orderly transition to sustainable energy. Once achieved, Australia will no longer be reliant on one or two major sources, but instead have a network of solar, wind and hydro to bridge future supply gaps (and avoid gas catastrophes like this one).
