The energy crisis in Australia explained as simply as possible

Australia is gripped by its worst energy crisis in decades. All the details to help you understand why it happened and what it means for your accounts.

Australia’s winter of discontent has worsened in recent days, with the spiral of energy crisis reaching an overnight low.

In what was arguably one of the most humiliating press conferences of his political career, NSW Treasurer Matt Kean brought up cameras Wednesday afternoon to beg residents, already stretched to their financial limits due to inflation, for non-essential power supplies. , including dishwashers.

“If there is an option for people to reduce their energy consumption, so maybe not use the dishwasher until you go to bed, that would help,” Mr. Kean said, clenching.

NSW Health staff in the Sydney Local Health District were also asked to limit their power consumption, with staff reportedly being asked to turn off unused electrical equipment and lights and avoid using printers.

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The troubles in NSW point to a wider energy emergency gripping the eastern states, causing massive confusion among residents who see their electric bills skyrocketing and sparking a hurricane of finger-pointing and name-calling at the state and federal political levels.

In the midst of the chaos, everyone keeps asking the same question; what the hell is going on?

Why is there a crisis?

Authorities have complained of a “perfect storm” of factors that are sending prices skyrocketing and pushing the state perilously close to the brink of mass blackouts.

In the end, it comes down to four main factors; Covid-19, the war in Ukraine, coal and an unusual cold snap.

Blame it on the weather

The winter months are when energy demand is highest in Australia, with the use of gas heating and increased demand for household power putting the most strain on power generators.

Normally that wouldn’t be a problem as Australia’s power generators are built to support seasonal demand. However …

The generators are not working

Sometimes the tools you need just don’t work, as is currently the case in NSW.

Coal is still Australia’s largest energy supplier today, but the country’s coal-fired generators are aging, with some falling into disrepair due to maintenance issues.

Since the beginning of the month, nearly a third of all coal-fired power plants have been shut down and general coal supplies are also hampered by flooding across the country.

“The number of generators that were expected to operate tonight has not materialized,” Mr Kean said yesterday.

“It shows exactly why we need a plan to modernize our power system, but in the meantime, we need to make sure our coal-fired power plants are working when they need to.”

Sickness and war

Of course, the authorities expected that the shock that Covid-19 caused to the global market would have significant consequences, but anticipating does not make them any less painful.

Supply of energy stocks declined due to lockdowns, but Australia’s subsequent reopening and mass relocation to (largely) normal life caught suppliers with their pants down.

Simply put, the supply did not meet the rapidly increasing demand.

The Russian invasion of Ukraine has also played an important role in the crisis, with the sanctions against Europe’s largest energy exporter start to bite, causing both the price and the amount of available energy to fluctuate.

Who has the power?

An unfortunate by-product of the crisis is that because private companies own a significant portion of the power grid, there is still a push to maximize customer profits.

This has contributed to the rapid rise in energy bills across the country.

However, customers are not completely at the mercy of their energy companies.

The Australian Energy Market Operator (AEMO) oversees national energy trade and retail management and works with the Australian Energy Regulator (now the regulator) to ensure energy suppliers are compliant.

From time to time, the AEMO or the regulator will step in to make sure things don’t get (too) out of hand for ordinary Australians – as it is now.

If wholesale prices remain too high for too long, the regulator will set a limit on the price of electricity due to market rules.

Based on calculations on a seven-day rolling cycle, the regulator stopped rising prices at $1.4 million per state a few days ago, meaning generators started losing money on their power sales due to rising wholesale costs.

As a result, generators began withholding power from the grid, with the regulator having to force suppliers to return to work, while promising to make up for any financial shortfalls — forcing companies to build up their offerings until they otherwise were ordered.

Deeming the “ring-a-generator” model unsustainable, AEMO took the unprecedented step of suspending trade over the east coast electricity grid, effectively guaranteeing power supply to residents.

The news was welcomed by the federal government, with Energy Secretary Chris Bowen urging residents to keep their heaters and other essential items turned on.

“Some (problems) are expected and some unexpected,” he said.

“Power failures at coal plants, for example, are unavoidable as the… plants get older and we haven’t seen the investment in renewable energy and storage – not nearly the amount we need.”

He added that despite the setbacks, he “got to work”.

Mr Bowen’s boss, Prime Minister Anthony Albanian, was much less impressed with how it all turned out.

“My message to energy companies is that they have a responsibility to their customers, whether households or businesses, to do the right thing,” Mr Albanese said this morning.

“We need to put an end to the kind of nonsense we’ve seen over the past ten years where we had announced 22 different energy policies, but none of them came to fruition.

“We have one policy. We’re going to land it. We’re going to run it. And it will make all the difference because it provides the security that business needs to be able to invest.”

What does this mean for my energy bill?

In short, it’s hard to know as this is the first time in history that the AEMO has taken control of the country’s power supply.

“What the impact of this will be on energy bills is not clear because it is not clear how long this will last, what the costs will be and how those costs will be borne – whether it will be borne by generators or whether it flows through to the consumer,” said Alison Reeve, deputy director of energy at the Grattan Institute The Sydney Morning Herald

The regulator has now set up a “command and control” system to keep generators running and the country from widespread blackouts.

“(It creates) one simple place where generators can put all their availability and send it in a simple and methodical way,” said Daniel Westerman, AEMO’s chief executive.

Long-term experts have warned that the supply of power in the standard market could rise by 18 percent over the next year, adding to the livelihood pressures affecting millions of Australians.

This could mean paying an extra $227 on your utility bill.

“This… is a confluence of factors that we will have to see in the coming days exactly how we got into this scenario,” said Mr. Westerman.

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