‘There is cause for great concern’: Australia warned of impending energy crisis as costs drive out retailers

Australia is on the “precipice” of an energy crisis like the UK’s that could bankrupt many of its energy retailers and fuel a wave of households unable to pay their bills, a leading expert has warned.

Rising wholesale energy costs have sparked widespread alarm among observers and there are fears that a significant portion of the Australian retail electricity market will be wiped out in the crisis.

Among those who expressed concern was new federal treasurer Jim Chalmers, who said in a speech today that Australia was facing a “perfect storm” of energy challenges.

Mr Chalmers yesterday pointed to revelations that gas prices in Victoria have risen more than 50 times higher than normal, prompting an intervention by the body that manages the energy market.

He said Australia paid a price – at least in part – for nearly a decade of uncertainty over energy policy under the previous coalition government.

“Particularly on the energy front, this is an incredibly challenging set of circumstances, especially for Australian industry when you consider this spike in gas prices, which goes hand in hand with a spike in liquid fuel prices and a spike in the price of electricity too,” said Mr Chalmers.

New Zealand-based energy supplier ReAmped became the latest victim of the shortage last night, telling its customers to go elsewhere as it was no longer able to provide an affordable service.

The company has about 80,000 customers on Australia’s east coast, but CEO Luke Blincoe said it had made the extraordinary decision to step back from the market.

Mr Blincoe said the company urged customers to find a new deal quickly, suggesting they had little time to act before selling prices escalated further.

“The wholesale energy market has just become so extreme that we are now seeing a situation where wholesale prices are higher than retail prices,” said Mr Blincoe.

“So, unless you’re a generator, there’s just no sustainable position in the retail market.

“And now is the right time to do that, while there are still a few deals available.”

Retail pain ‘a common story’

According to Mr. Blincoe, customers of ReAmped who could not find another supplier were faced with a doubling of prices from July.

Bruce Mountain of the Victoria Energy Policy Center said ReAmped’s predicament was a familiar story among smaller and start-up energy providers in the national electricity market.

Rising electricity costs will hit households amid a series of price hikes starting in July.ABC News: Liz Pickering

Professor Mountain said many of the companies that had entered the market in recent years to compete with incumbent suppliers such as AGL, Origin and Energy Australia were particularly vulnerable.

He said this was because they were essentially “resellers” who produced little – if any – of their own electricity and therefore relied heavily on wholesale market purchases.

“I’m very concerned about what this means for the retail market,” Professor Mountain said.

“If they weren’t there, the big retailers would face a lot less competition and would charge even more and customers would get even worse service.

“So I’m very concerned about these smaller companies — they’re going to have a very difficult time.”

Last week, the Australian Energy Regulator cited the rising cost of wholesale power in its decision to raise benchmark prices to 18 percent from July

‘We are on the precipice’

But Professor Mountain said the regulated rate hike was paltry compared to the reality in the wholesale market, where prices have risen in recent months.

Pipes leading to the water
It is hoped that energy storage projects such as Snowy Hydro 2.0 will help stabilize energy costs.Supplied: Snowy Hydro

In a report from the end of April the Australian Energy Market Operator noted that wholesale prices were up 141 percent in the 12 months to March 31

Professor Mountain said that not only had prices risen alarmingly, but they remained at extreme levels global instability and shortages of fuels such as coal and gas pushed the market up

He said Australia was at risk of going into a full-blown energy crisis, similar to the one in the UK, where skyrocketing prices have sent half of its electricity stores to the wall and sparked a wave of energy poverty.

“It is too far to say that it is now in crisis, but there is reason to be very concerned,” he said.

Mr Blincoe said he was “dismayed” by the decision to pull out of the market, but said passing on the types of price increases required by the wholesale market is unsustainable.

He said ReAmped would try to re-enter the fray once volatility and prices eased, but acknowledged it could take a while for that to happen.

“We have worked hard for three years to build a really successful business,” he said.

“But the reality is that if we want to be around in the future to continue to save Aussies money, we have to manage our position.

“Nobody wants to send massive price increase letters when Aussie families are clearly already having a hard time with a major cost crisis.”

Users ‘still have choice’

Person takes money from wallet
Energy poverty is expected to increase as power prices increase the cost of living.Supplied: AAP

A spokesman for the Australian Energy Council, which represents major energy suppliers, noted that retailers could face “huge losses” if exposed to price spikes in the spot market.

However, the spokesperson also noted that retailers were required to ensure that price increases were consistent with changes in their production costs.

He also said that retail profits were typically only three percent of a bill.

“The best thing consumers can do is look for the best market deals through the government’s Energy Made Easy website,” the spokesperson said.

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