“A new Ai Group CEO survey has added to the weight of evidence that rising energy prices are exposing businesses and their employees to heightened risks and may see Australia losing jobs and business activities offshore,” Australian Industry Group Chief Executive, Innes Willox said.
“The survey report, Energy shock: No gas, no power, no future?, draws on multiple lines of evidence that confirm that energy prices are rising fast across the National Electricity Market and Eastern Australian gas market.
“Business and households are going to see severe increases in their costs. Wholesale electricity prices are roughly doubling. Wholesale gas prices are at least doubling and may well rise much further. Spot prices are becoming more volatile.
“The dollar impact of the current and forecast price increase is staggering. Once fully passed through, the electricity and gas price increases will cost energy users as a whole USD 10- 12 billion per year. Households will pay up to an extra USD 3.6 billion a year, and business up to USD 8.7 billion a year.
“Within business, energy-intensive manufacturers will be particularly hard hit, paying up to USD 4 billion a year. This will worsen margin pressures for business, with some manufacturers questioning their ongoing viability as a result. Such businesses will be looking closely at options to move operations offshore, reduce their local workforces or both.
“The survey found over half (51 per cent) of businesses expected price increases in the coming year and only 4 per cent expected a decrease. Most businesses sign energy contracts of more than one year, and price increases take time to filter through. Wholesale prices have continued to worsen since the survey.
“Long-term gas contracts are getting harder to obtain (worsened by a non-transparent market) and onerous take-or-pay provisions mean more risk for users (especially large ones).
“Politics-driven energy policies are making a bad situation worse. This includes decisions to put gas development on hold in NSW, Victoria and the Northern Territory, partisan warfare on energy and climate at the Federal level, and entirely uncoordinated State renewable energy targets.
“Several factors are driving up wholesale electricity and gas prices including the closure of some baseload electricity generators, the unprecedented LNG developments placing strain on both the gas market and the cost and availability of gas-fired electricity generators, record electricity demand related to the pumping of LNG gas, the recovery of global coal prices, and the restriction on the development of additional on-shore gas supplies.
“Achieving lower energy prices will not be easy: gas faces international price parity and rising production costs, while all new electricity generation looks expensive and new investment is needed. Easing production, an import terminal and pro-competitive market reform will help in gas.
“More available gas will help electricity, as will meeting the existing RET and settling national coherent energy and climate policy reforms to ease transition and reward low-cost flexibility. Energy efficiency and productivity and demand response will help with affordability and reliability for all.
“Further reductions can be driven through well-designed policies, including State efficiency schemes, support for audits, product standards and more, that have benefits both for direct participants and the wider market.
“This report, together with recent statements by major business including Bluescope and Orora about the impact of rising energy prices putting investment at risk, should be a warning siren to policy makers to put the interests of jobs and affordable and reliable energy before politics,” Mr Willox said.
The Report was based on responses from the CEOs of 285 private-sector businesses across Australia in October and November 2016. Together, these businesses employed around 38,000 people (130 people each on average) and had an aggregate annual turnover of around USD 26 billion in 2016.
To read the report – Energy shock: No gas, no power, no future – click here