Proposed new charge could see energy bills jump by up to $430 a year

A proposed new charge on energy bills could see household costs skyrocket by up to $430 a year due to the increasing costs of generating electricity from coal-fired power plants.

If introduced, the ‘capacity payment’ charge will make Aussie consumers pay an additional fee to electricity generators, according to a recent industry body report.

The Institute for Energy Economics and Financial Analysis (IEEFA) revealed that the Energy Security Board’s (ESB) proposal for a power capacity charge could cost Aussies dearly.

Under the scheme, customers would pay power plants for the electricity they generate on top of the plant’s electricity generational capacity, regardless of how much power is needed. This would affect customers on the National Electricity Market (NEM) – Australia’s largest power network servicing the east coast and southern states.

The controversial charge would be felt by households, with the figures almost double that seen when carbon pricing was introduced in 2012, IEEFA electricity analyst and report co-author Johanna Bowyer said.

“We found households in the NEM would see their electricity bills increase anywhere between $182 to $430 a year,” Ms Bowyer explained. “By way of comparison, the cost increase faced by New South Wales, Victorian and Queensland consumers from the carbon price was between $112 to $150.

“Based on the Western Australian capacity payment experience, consumers could be facing a new charge which is potentially more than double that of the carbon price. Even at the lower end of capacity prices paid in the West Australian market, the cost on power bills would still be 21% greater than the carbon cost faced by Queenslanders, 30% higher for South Australians, 41% greater for New South Wales households, and 62% higher for Victorians.”

Price increase prediction for households on the NEM if capacity charge is introduced

Image source: Institute for Energy Economics and Financial Analysis (IEEFA) website.

The ESB claims that the proposed charge is a necessary expense for the energy market, particularly as more and more coal-fired power stations become unreliable and look to be shut down.

These capacity charges claim to act as a security net for the electricity grid, by providing extra financial support to power plants to allow them to run at full capacity, which would help to prevent energy shortages that may occur if a large number of coal stations are closed.

However, Ms Bowyer noted, that while not all power plants in Australia run at full capacity, the charge will sit in place as if that were the case.

“The ESB’s new proposal will require electricity consumers to pay primarily conventional generators such as coal and gas plants for what they could produce if the plant was operating at its full level of capacity, regardless of whether or not, or how often, the generator uses all of its capacity to produce electricity,” Ms Bowyer said.

A final decision on the proposed capacity charge is yet to be made.

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Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the Ausgrid network in Sydney but prices may vary depending on your circumstances. This comparison assumes general energy usage of 3900kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the Citipower network in Melbourne but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the Energex network in Brisbane but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4600kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the SA Power network in Adelaide but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Will Australia have an energy capacity problem without coal fired-power stations?

The upcoming closure of some of the leading coal-fired power stations, such as Yallourn, Callide B and Vales Point B, has sparked fears that the capacity of Australia’s energy grid will be disrupted, potentially causing more blackouts in future.

Despite these fears, Ms Bowyer shared that the IEEFA found that these uncertainties are unlikely to cause as large an issue as originally proposed.

“While it is true that several coal power plants are facing financial difficulties, our analysis finds that reliability is not at threat by the level of likely coal power plant exits over the next ten years.

“Thanks in part to actions of the Federal Government, there is a flood of dispatchable capacity entering the NEM. This covers a range of controllable sources of power from hydro to batteries, bioenergy, gas and even some small coal power plant upgrades.”

Co-author from Green Energy Markets, Tristan Edis supported these findings, sharing that the capacity already anticipated to enter the grid from other projects will balance out the removal of coal power stations.

“From 2017 to 2027, almost 6,500 megawatts of dispatchable power project capacity will be added to the grid,” Mr Edis explained. “To put this into perspective, this is almost double the capacity that will be lost from the next three coal power stations due to close after 2027 – Yallourn, Callide B and Vales Point B.

“This means that all states across the NEM have enough power capacity for the next decade to meet the strict reliability standard of satisfying more than 99.998% of demand.”

If passed, how will these charges be passed on to bill-payers?

If this capacity charge is approved, there will likely be a price restructure for energy bills to include this charge. Since this charge will be on behalf of the power plant or energy generation companies, not energy retailers, customers won’t just receive a bill with the additional charges listed on it. This cost will likely be funneled down into the usage and supply charges.

Why are coal-fired power stations being shut down?

There are two main reasons why coal fired-power stations are being shut down; renewable energy and reliability.

With Australia’s goal for net zero emissions in the energy sector by 2050, the state of the national energy grid needs some re-working. At this stage, Australia is quite reliant on coal-fired energy generation and with coal being a fossil fuel and more prone to releasing carbon emissions than other energy sources, new energy generators that are more renewable, like hydro or solar, are expected to replace coal-fired generators.

A lot of the current coal-fired generators on the grid are also becoming less reliable, thanks to aging technology. Most of these generators have been running in Australia for several decades and as such have gained wear and tear. But, as the world slowly becomes more favourable to renewable energy, it’s not only becoming cheaper, but safer, to just terminate a coal station than it is to repair it.


Image credit: AlexandrMusuc/Shutterstock.com

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