Digital Snapshot

by Justin Burke

Energy Crisis: Australia on the Brink of Blackouts

Digital Snapshot #12/22

17 June 2022

A potpourri of current affairs topics from Australia, New Zealand and the South Pacific brought to you by KAS Australia and the Pacific. The weekly digital snapshot showcases selected media and think tank articles to provide a panorama view and analysis of the debate in these countries.

Disclaimer: The views expressed in these articles do not necessarily reflect KAS Australia’s position. Rather, they have been selected to present an overview of the various topics and perspectives which have been dominating the public and political debate in Australia and the Pacific region.

Australia’s energy markets have experienced significant turbulence this past week, with the Australian Energy Market Operator (AEMO) taking the unprecedented step of suspending the wholesale electricity market to prevent imminent blackouts across the Eastern states.

The cost of power had been rising so rapidly – with spot electricity prices headed towards AUD$1000 per megawatt-hour, or about 80 times the normal level – that the AEMO was prompted to place a cap on the wholesale price of electricity in Queensland, New South Wales, Victoria and South Australia. This resulted in the available supply from generators declining further, contributing to a forecast supply shortfall. Accordingly, AEMO suspended the wholesale market serving the eastern states, moving to a temporary centralised “command and control” system that will match supply and demand in a systematic way. A compensation regime applies for generators who are directed to produce power at a loss, but the regulator has now sent several stern warnings to the industry over holding back supplies to the market.

How did a nation which is an “energy superpower”, with abundant hydrocarbons as well as renewable energy sources such as sun and wind, get to the very precipice of blackouts? There is no single answer, rather a perfect storm of global circumstances and policy choices across recent decades which have combined to land squarely on the desk of the newly elected Albanese government.

Analysts have cited a range of factors which have impacted energy demand in Australia. There has been a post-COVID economic rebound, leading to higher electricity demand, coupled with a burst of cold winter weather, increasing power demands for heating.  But the supply side appears to carry the larger burden. The Russian invasion of Ukraine has roiled the international gas market into which Australia is a major supplier, exporting some three-quarters of domestic production or 4393 petajoules annually. Legal and environmental constraints on conventional gas exploration, as well as the outright bans on fracking, have also been cited. Coal-fired power generators have suffered disrupted coal supplies due to the floods in recent months, as well as unplanned maintenance issues due to the advanced average age of their infrastructure. There has been less of a contribution from renewable energy sources in recent months, with cloudy weather resulting in a 27 per cent drop in solar power generation in May compared with April, and wind-generated power falling about 1.9 per cent in the same period.

This is against the backdrop of almost two decades of “climate wars”, which have seen multiple Australian federal governments – and the careers of individual leaders – rise or fall over questions of perceived climate inaction, overpromising and underdelivering, and the controversies over carbon pricing and carbon taxes. (Nuclear power remains off the agenda, despite Australia’s abundant uranium resources and exports.) The result has been a suboptimal regime which has directly supported increased intermittent renewable energy production on one hand and created uncertainty and reduced incentives for baseload coal and gas-fired power generators which are de-facto being phased out on the other.

While many have hailed the recent election of the Albanese government (and the rise of the Teal independents) as a new dawn for Australian climate change policy, and while it has already committed to a more ambitious emissions reduction target, it appears that the old political cleavages remain with the “blame game” rapidly restarting.

Opposition leader Peter Dutton has described the crisis as a “problem of (energy minister) Chris Bowen’s making,” criticising the Labor government for negative comments around fossil fuels. In turn, Prime Minister Albanese has criticised the previous government for its “inaction” over almost a decade.  Despite this, political commentators have noted that voters will quickly come to blame the current government if their response is inadequate.

It was a top agenda item at the National Cabinet meeting of state and territory leaders held in Canberra on Friday. In other comments, Energy Minister Chris Bowen has ruled out extending the life of coal-fired power stations, saying the government believed further investment in renewable generation and storage was a better option. He was unable to say when the intervention from AEMO would end. Industry Minister Ed Husic also warned gas producers that all options were on the table, including a national gas reservation policy. “I’ve got a great deal of sympathy with the view in the broader public that these are Australian resources that should be available for use by Australian households,” he said. “If we are shipping out of some of our ports seven times the level of supply that is used by Australia in one year, this is not an issue that we don’t have the gas.”

Meanwhile, consumers are likely to face higher power prices, as has been warned for several months, coupled with warnings to conserve energy during peak use periods (typically between 6pm-10pm).