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Australian Government faces nationwide resistance to proposed coal price cap

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By Imelda Cotton - 
Australian Government proposed coal price cap energy

Australian Treasurer Jim Chalmers expects energy prices to increase by an average of 20% nationally by December.

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The Queensland Government has resisted calls to allow a wholesale price cap on coal as a way of reducing household energy bills, telling the Australian Federal Government to effectively mind its own business.

The response comes after the Australian Energy Regulator (which oversees the east coast market and is a statutory adviser to the Federal Government) claimed that rising international demand and higher prices for Australian coal have been key drivers of soaring power bills.

It said one driver of power prices came when more coal than usual was bought on the spot market after domestic supply was reduced by wet weather.

This meant soaring international coal prices were “unusually influential” in driving up wholesale prices.

In this year’s federal budget, Treasurer Jim Chalmers said energy prices were expected to increase by an average of 20% nationally by December and a further 30% in 2023-2024 due to a global energy crunch caused by Russia’s continued war on Ukraine.

Sanctions on Russian coal and gas exports have meant supply cannot meet demand and as a  consequence, the global prices of gas and coal have surged.

Mr Chalmers said gas prices were forecast to rise by 44% during the same period.

Under pressure

Australia’s Federal Government is under pressure to ease energy costs on households and industry, following an election promise to revitalise manufacturing and cut power bills by $275 by 2025.

But earlier this week, Australian Prime Minister Anthony Albanese suggested his government may struggle to provide comprehensive energy price relief unless New South Wales and Queensland co-operate with a plan to temporarily cap the wholesale price of coal.

Queensland Premier Annastacia Palaszczuk fired back that she would not jeopardise her state’s ability to reimburse the public through profits generated from state-owned power generators.

She is not the only one to be incensed at the government’s proposed price cap.

Other opponents

Other opponents include the Australian Council of Social Service which says regulation of the market is needed to ease the “crushing” cost of living facing three million Australians living in poverty.

It believes the cap on wholesale prices should be set to the five-year average spot price of $8 to $10 per gigajoule – however prices have been three times that this year in most markets.

Federal Minister for Industry Ed Husic said industrial customers – which comprise about 48% of domestic gas demand – deserved action on prices.

Australian Workers Union national secretary Dan Walton said without action, the nation would be “moments away” from job losses and quality manufacturers going under.

And the Minerals Council of Australia — which has a membership including coal miners BHP Group (ASX: BHP), Glencore Australia and Whitehaven (ASX: WHC) — has threatened to wage a multimillion-dollar advertising blitz against price caps on coal.

Mineral Council chief executive officer Tania Constable has said her organisation is “already having discussions with the government” about potential interventions and an ad campaign would be about “standing up for families, standing up for small businesses across regional Australia”.

In 2010, the Minerals Council ran a $22 million campaign which brought down the Rudd Government’s proposed resources rent tax.

German price cap law

This week, the Germany Government announced it had approved a draft law to cap the price of electricity and gas by granting customers a fixed volume of supplies at reduced rates.

The “price brakes” will become effective in March and will retroactively cover higher costs in January and February.

These caps will remain in place until at least April 2024.

According to the German Government, the price caps form “the centrepiece” of a $300 billion “defence shield” against the energy crisis and will be co-funded by scooping up windfall profits made by electricity producers after 1 December.

“The levy will be designed in a way that leaves an adequate share of the proceeds to guarantee profitable operations, but also ensures that a substantial contribution is made towards relieving customers and the economy,” it said.

Consumption levels

The cap on gas (at 12 cents per kilowatt hour) for households, smaller companies and public institutions like hospitals or universities will apply to a consumption level equalling 80% of their estimated annual usage.

Any amount used beyond this will cost customers much higher market rates.

Prices for larger industrial customers will be capped at 7c/kWh for gas, and will apply to 70% of their consumption in 2021.

Electricity prices for households and small companies will be capped at 40c/kWh for 80% of the estimated consumption and at 13c/kWh for larger industrial companies covering a volume equal to 70% of last year’s consumption.

The law includes several “hardship provisions” for customers affected “in a particular way.”

The German Government devised the subsidies in reaction to the energy crisis fuelled by Russia’s war on Ukraine, which it said had led many companies to increase their own prices and contribute to general inflation.