This month, Australia’s third-largest electricity supplier, EnergyAustralia, revealed it had plunged into a $1.6 billion loss for the first six months of this year.
- Australia’s largest electricity supplier AGL reported a 58% drop in its benchmark annual profit yesterday
- The fall follows similar declines for the electricity and gas distribution businesses of Origin Energy and EnergyAustralia
- Experts say energy crisis more painful for electric utilities, but more windfall gains for fossil fuel exporters
The result came as something of a shock to the average bettor accustomed to the idea that exorbitant wholesale power prices would be a boon for power giants.
Then came this week, when the two big Australians – Origin Energy and AGL – reported falling profits in their power businesses.
Tim Buckley, founder of research firm Climate Energy Finance, said the findings could be boiled down to a fairly simple explanation: soaring coal and gas prices were a blessing for exporters and a curse for everyone else.
“Consumers are getting screwed, whether it’s gas prices exploding or electricity prices doubling, tripling, that sort of thing,” Buckley said.
“There are national energy companies that are just being buffeted by the same unpredictable forces.
“Those who pretend to be bandits are those who are the big exporters of fossil raw materials.”
This week has provided the clearest picture yet of the winners and losers of the unprecedented chaos in Australia’s energy markets.
Mr Buckley said contrary to expectations, electricity suppliers were suffering.
The crisis is not a godsend for public services
Reasons for this, he said, included the increasingly unreliable nature of their coal-fired power plants, whose deteriorating performance often left them short of capacity to supply the market.
He added that those same power companies were exposed to fuel costs for coal and gas, which were rocketed to record highs during Russia’s invasion of Ukraine.
Moreover, the uncertainty surrounding energy policy at the national level for more than a decade has sown the seeds of underinvestment in the renewable energy that would be needed to replace aging fossil fuel production.
Mr Buckley said the result was painful for AGL and Origin.
“Integrated utility providers are really hurting,” he said.
“And I would put that down to the massive political chaos we’ve had over the last 10 years.
“If you look at what AGL says, why were their results shattered?
“They described five key factors and all of them are related to fossil fuels.”
Unlike the power industry, Mr Buckley said the reporting season had underscored how profitable fossil fuel exporting had become.
He noted that a roll call of Australia’s biggest commodities players – from oil and gas producer Santos to coal exporter Whitehaven and global mining giant BHP – had recorded bumper gains from their fossil fuel operations. over the past year.
Consumers pay the price
Ironically for Origin, he said the company’s stake in the Australia Pacific LNG business in Queensland had offset the setbacks suffered by its power business.
“Investors in these companies are effectively getting the windfall profits that we consumers are paying for,” he said.
“But probably like never before in Australia’s history, due to the opening up of massive coal and, more recently, LNG export capacity from the east coast, we have now moved to parity export prices in our east coast energy market.
“And that, to me, is what’s really evident in this week’s results.”
Dale Koenders, head of energy and utilities research at investment bank Barrenjoey, said the upheaval in global energy markets is causing problems for domestic power providers.
Mr Koenders also warned that unless the heat comes out of the international economy – perhaps due to soaring energy costs – Australia’s power industry could count on little relief.
“I think what’s happening right now is that the resilience that exists in the electricity market is drastically diminishing as we force renewables without hydropower or batteries to support them,” Mr. Koenders.
“So until Snowy Hydro starts up in 2027, you’re likely to see more volatility and more reliance on spot supply for coal and gas.
“So greater dependence on global energy markets which are suffering from their own energy shortages given the Russian invasion [of Ukraine].
“For now, unless we see a substantial slowdown in global GDP, a recession, we are likely to see a continuation of this volatility in high electricity prices.
“This is a time of greater uncertainty for these large companies where they will be really tested in terms of foresight, planning and risk mitigation.”
No relief without an energy plan
None of the volatilities affecting the East Coast energy market were good news for households or businesses, Koenders said.
He said consumers had so far seen only a fraction of the lower prices likely to come from the crisis affecting the national electricity market and gas prices on the east coast.
But he warned that bills should eventually catch up with soaring wholesale prices.
“I don’t think it matters what supplier you’re with,” he said.
“We are only halfway to passing on the cost of global energy price spikes to consumers.
“So unless we find a rational way to navigate the energy transition over the next five years, these higher prices risk becoming the new normal.
“We haven’t seen the worst yet.”
This was a view shared by Mr. Buckley.
“It’s horrible for consumers,” he said.