OPINION: Coal prices are falling, so why are power prices still rising?

15 March 2023

Daily Telegraph – Coal prices are falling, so why are power prices still rising?

Too often, grand promises and sweeping statements from politicians collide head-on with facts and reality. When this happens, families and businesses usually bear the cost.

In the months ahead, NSW families and businesses face the stark reality of hollow political promises on power prices, and the falsehoods used to justify them.

Over the last few years, state and federal governments have promised lower power prices. Despite these solemn commitments, electricity prices have continued to increase. When facts and reality have collided with political promises, blame has been shifted.

Last year Energy Ministers Chris Bowen and Matt Kean led a conga line of various politicians blaming rising power prices here on high global coal prices, driven by the war in Ukraine. For months we were told Putin’s war was to blame for high global coal and gas prices. It was their excuse why promised lower electricity prices could not be delivered.

Under pressure to act, the Energy Ministers convinced their governments to introduce price caps on coal sales to NSW power stations. We were told this would put downward pressure on power bills. Problem solved right?

Three months later, these promises are also colliding with reality, and exposing the truth behind rising power prices here in NSW.

Global coal price markets are fickle, and can change quickly. In fact, since the coal price caps were introduced in December, the high global coal prices politicians told us were to blame for high power bills have fallen by more than 50 percent. Yet despite this dramatic fall in coal prices, electricity bills in NSW are still set to increase – by at least 20 percent in this year alone, with more increases expected in the future.

So why are our energy bills still rising sharply when coal prices are dramatically falling?

Like most things, the price of electricity increases when demand outstrips supply. And here in NSW, electricity supply is falling.

Over the next few years, around 30 percent of existing baseload electricity supply is set to be withdrawn from the grid. This is because the Liddell Power Station will close next month, followed by the Eraring Power Station in 2025. At the same time, the generation capacity supposed to replace these two coal-fired power stations is yet to eventuate. 

The planned expansion of the Snowy Hydro Scheme is hopelessly delayed and massively over budget, with a huge tunnel boring machine stuck underground. The Kurri Kurri gas plant is also delayed, and the NSW Government’s much-vaunted Renewable Energy Zones are also progressing way too slowly to be ready in time for the closure of Eraring in 2025.

With energy regulators repeatedly warning of the consequences, an urgent change of approach is needed. At the very least, closure of the Eraring Power Station in 2025 must be delayed until replacement generation is ready. Failure to do so will mean electricity shortages, blackouts, and further increases in energy prices.

This reality recently received brief bipartisan acknowledgement during the state election campaign. NSW Energy Minister Matt Kean publicly flagged possible intervention to delay Eraring’s closure if needed to keep the lights on. NSW Labor Leader Chris Minns quickly followed, and went even further, refusing to rule out a possible public buy-out of Eraring to keep it operating if necessary.

Sadly, this rare example of policy common sense didn’t last long. By the end of the day Matt Kean had back-flipped, ruling out any such action. If re-elected, Mr Kean will get the chance to perfect his backflip technique again when reality once again collides with his promises, and intervention becomes necessary.

Stephen Galilee

CEO NSW Minerals Council