Australia May Be Targeting Wrong Culprit for Power Price Jump

(Bloomberg) -- The Australian government hounding the gas sector to get power bills down is overlooking the surge in the price of coal, which fuels the bulk of the country's generation.

The cost of coal power in Australia has doubled from 2016 levels, in line with seaborne spot prices of the fuel, Bloomberg NEF said in a report Monday. That's one of the most important factors driving up power prices in the wholesale market, which gets a little over half of its electricity from black coal, a less polluting variety than brown coal, according to BNEF.

Australia is one of the world's biggest sources of coal and natural gas, but years of political gridlock and policy missteps have saddled it with rising power prices. Efforts to curb the gains so far have focused on gas supply, including regulations to get producers to divert resources meant for overseas customers to domestic markets. There's no such mechanism for coal.

Black coal generators are producing more power following the closure of several brown coal plants in the past two years, forcing those operators to source more fuel from the spot market where prices have risen sharply, said Ali Asghar, lead author of the BNEF analysis. “The result is that they have to charge more for their power.”

Higher Prices

Coal-fired power was offered at A$20 to A$40 per megawatt-hour during most of 2016 and is now made available for A$40 to A$60, BNEF estimates. Over the period, seaborne thermal coal prices have doubled due to increased demand in Asia for Australian coal.

Click here to read how coal's surge has cut profitability of power plants

Australia's Energy Minister Angus Taylor has said cheaper electricity is the government's No. 1 priority. So far, Taylor has focused primarily on the retailers and their price offers, while also announcing plans to invest in new coal-fired power plants.

It may not be too long before Australia's power prices start to ease, though. Wind and solar farms are increasingly competitive, and the current wave of new plants under construction should push prices down when they become operational in 2019 and the year after, according to BNEF.

“Wind and solar are the electricity market's hedge against exposure to rising international coal or gas prices,” Asghar said.

To contact the reporter on this story: James Thornhill in Sydney at jthornhill3@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Jasmine Ng

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