What’s causing Australia’s high energy prices?

Unless you’ve been living and working off-grid for most of the year, you will have noticed that electricity prices are skyrocketing.

The interaction of various local and global factors has recently caused an energy crisis that is forcing wholesale power prices up. According to the Australian Electricity Market Operator (AEMO), wholesale power prices rose a staggering 141 per cent in the first quarter of 2022.

Obviously, this has major repercussions for the buying power of businesses in a rapidly changing energy market. An important part of managing your business’s energy costs is understanding the reasons for instability and rapid change in Australia’s energy market.  Power prices aren’t decided in a vacuum and there are several factors, both local and international, that are contributing to the current market volatility.

Contributions to spiking prices

International conflict: the war between Ukraine and Russia has caused a price spike resulting from disruptions to energy supply in Europe and supply chain disruptions internationally. Price rises can exacerbate supply problems because local energy suppliers prioritise energy exports for higher returns, further pushing up prices in the local market.

Extreme weather events: Australia’s recent floods and La Niña weather pattern affected coal supply, resulting in lower stockpiles of coal, a lower output of coal-generated electricity, and associated higher prices. Because approximately 70 per cent of Australia’s energy market relies on coal, disruptions in the availability of coal-generated power have knock-on effects to the supply, and subsequent pricing, of gas and renewable energies. As stockpiles of these alternative energy supplies become depleted, or generation capability is insufficient to meet demand, power prices are forced up.

Supply Constraints: pressures on supply of liquid natural gas in Europe, the US and Asia has seen prices reach record highs as recently as August of this year. Australian gas suppliers took advantage of high export returns, leading the AEMO to intervene to ensure local supply, but this is not considered to be a long-term solution to the issue of supply constraints.

What does the future hold and what can we do?

Wholesale prices are predicted to remain high in the foreseeable future, as these political and environmental factors continue to play out. For business owners, the difficulty lies in understanding the reasons why prices might rise and how the volatile energy market will affect their ability to manage energy costs.

Given that prices are likely to continue to fluctuate in response to unpredictable world events, it makes good financial sense for business owners to explore all the options available to meet the energy needs of their business. Experts have indicated that in the medium to long term, demand for renewable energy and the market’s ability to supply it will be instrumental in lowering power prices across the board as the nation’s reliance on fossil fuels decreases.

Information is power (savings)

By understanding the reasons for electricity price fluctuations, we can start to take control now and avoid huge power bills.

Firstly, it is a great idea to have professionals look over your current electricity contract to let you know if there’s a better one for you. Get in touch with our friends at Leading Edge Energy to obtain a FREE energy valuation here: https://www.leadingedgeenergy.com.au/energy-partners/

Then, for more information on how you can lower your business power bills, contact Energy Partners now on 1300 768 977.