This month Australia’s third-largest energy provider, EnergyAustralia, revealed that it had slumped to a loss of $1.6 billion during the first six months of this year.
- Australia’s largest energy provider AGL on Friday reported a 58 percent drop in benchmark full-year profit.
- The drop follows similar declines for the retail electricity and gas businesses of Origin Energy and EnergyAustralia.
- Experts say the energy crisis means more pain for energy utilities, but more windfall gains for exporters of fossil fuels.
The result was somewhat of a shock to the average punter who got used to the idea that sky-high wholesale energy prices would be a boon to the power giants.
Then came this week, when Australia’s big two, Origin Energy and AGL, reported falling profits in their electricity businesses.
Tim Buckley, founder of the research firm Climate Energy Finance, said the results could be summed up in a fairly simple explanation: Soaring coal and gas prices were a blessing for exporters and a curse for everyone else.
“Consumers are being screwed, either because gas prices have skyrocketed or because electricity prices have doubled, tripled, that kind of thing,” Buckley said.
“There are the national energy companies that are being hit by the same unpredictable forces.
“Those who are kissing like bandits are the big exporters of fossil fuel raw materials.”
This week provided the clearest picture yet of the winners and losers from the unprecedented chaos sweeping Australia’s energy markets.
Mr Buckley said that contrary to expectations, electricity providers were suffering.
The crisis does not benefit public service companies
Reasons for this, it said, included the increasingly unreliable nature of its coal-fired power plants, whose deteriorating performance often left them unable to supply the market.
He said that on top of that, those same power companies were exposed to fuel costs for coal and gas, which had been pushed to record highs amid the Russian invasion of Ukraine.
Furthermore, uncertainty over energy policy at the national level for more than a decade had sown the seeds of underinvestment in the renewable energy that would be needed to replace aging fossil fuel generation.
Buckley said the result was painful for companies like AGL and Origin.
“Integrated utility providers are really suffering,” he said.
“And I would attribute that to the enormous political chaos that we have had in the last 10 years.
“If you look at what AGL says, why have their results been screwed up?
“They outlined five key factors and all of them are related to fossil fuels.”
In contrast to the electricity industry, Mr Buckley said the reporting season had underlined how profitable the export of fossil fuels had become.
He noted that a list of Australia’s biggest commodity players, from oil and gas producer Santos to coal exporter Whitehaven and global mining giant BHP, had posted windfall profits from their fossil fuel operations in the past year.
Consumers bear the brunt
Ironically for Origin, it said the company’s involvement in the Australia Pacific LNG business in Queensland had offset setbacks experienced by its electricity business.
“Investors in those companies are effectively getting the windfall profits that we, the consumers, are paying for,” he said.
“But probably unlike any other time in Australia’s history, due to the opening of massive export capacity in coal and more recently in LNG from the East Coast, we have now moved to export price parity in our East Coast energy market.
“And that, to me, is what’s really evident in this week’s results.”
Dale Koenders, head of energy and utilities research at investment bank Barrenjoey, said the turmoil in global energy markets spelled trouble for domestic energy providers.
Mr. Koenders also warned that unless the international economy falters, possibly as a result of rising energy costs, Australia’s electricity industry may be in for little relief.
“I think what is happening now is that the amount of resiliency that exists in the electricity market is being reduced substantially as we force renewables without hydro or batteries to back them up,” Koenders said.
“So until Snowy Hydro kicks in in 2027, you’re likely to see increased volatility and increased reliance on point-in-time supply of coal and gas.
“So a greater reliance on global energy markets that are suffering from their own energy shortages due to the Russian invasion [of Ukraine].
“For now, unless we see a substantial slowdown in global GDP, a recession, we are likely to see a continuation of this volatility in high electricity prices.
“It’s a period of heightened uncertainty for those large companies where they will really be put to the test in terms of foresight, planning and risk mitigation.”
There is no relief without energy plan
According to Mr. Koenders, none of the volatility that hit the East Coast energy market was good news for households or businesses.
He said consumers had so far only seen a fraction of the price pain likely to stem from the crisis hitting the national electricity market and gas prices on the East Coast.
But he warned that bills would eventually have to catch up with rising wholesale costs.
“I don’t think it matters which provider you’re with,” he said.
“We are only halfway through passing the cost of peak global energy prices onto consumers.
“So unless we can find a rational way to navigate the energy transition over the next five years, these higher prices are likely to become the new norm.
“We haven’t seen the worst yet.”
It was a view shared by Mr. Buckley.
“It’s horrible for consumers,” he said.