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Wholesale energy prices have spiked as government split over policy

Wholesale energy prices have spiked as government split over policy

Wholesale energy prices have been increasing as the federal government has been splintered and changed leaders over energy policy.

Spot wholesale prices for NSW averaged $78-$86 per megawatt hour in the first half of August – before the government dropped the National Energy Guarantee and emissions targets.

Those prices rose to an average $92/MWh in the third week of August and $116 last week when the government changed prime ministers.

Similar price rises have been seen in Victoria (from an average $59-$72/MWh in the first half of August to $81-$107 in the last two weeks), Queensland (from $78-86/MWh to $84-$94/MWh) and South Australia (from $59-$82/MWh to $75-$86/MWh). Tasmania, which has a lot of hydro and wind power, has had typically low winter prices ($20-$37/MWh).

Futures prices have also spiked sharply over that period. For example, prices for electricity for delivery in NSW next year are up from $72/MWh in early July and $78-$80/MWh around the middle of August to $84/MWh on September 1, according to ASX Energy.

The increases come after a long period in which prices retreated from the panic levels of winter 2017 as increasingly cheap renewable supply came on to the NEM and the government worked methodically towards a more stable energy policy posture.

The new energy minister Angus Taylor took credit for on behalf of the government in his maiden speech in the role on Thursday.

The upturn in prices can be blamed on a variety of factors and not just the national energy policy vacuum created by the government's sudden upheaval, said Ivan Slavich, chief executive of Energy Action, a consultancy.

The energy market has started to focus more on the challenges next summer may bring; drought has depleted Snowy Hydro's storages and the Australian Energy Market Operator's 2018 Electricity Statement of Opportunities, released on the eve of the leadership spill, said unreliable, ageing coal and gas plants will increase the risk of summer blackouts in the coming years if new capacity isn't built to replace them in time.

Load shedding in NSW and Victoria on the Saturday after the spill after lightning felled the Queensland-NSW Interconnector also highlighted the vulnerability of the grid.

Mr Slavich said prices for corporate power purchase agreements with new solar and wind farms are very competitive at the moment but if government policy isn't going to be as supportive of them in future then there will less new capacity and prices will rise.

Prices to go up further before the summer even though the long-term trend is downwards and advised any large buyer with a contract expiring before the end of the year to lock in a new contract now.

Mr Morrison's assignment of the job of getting prices down to Mr Taylor may come back to haunt the long-time foe of wind farms. Axed prime minister Malcolm Turnbull's outspoken son Alex didn't hesitate to link the leg-up in electricity futures prices to the energy policy chaos which he has blamed on the fossil fuel lobby on Twitter on Sunday.

"Its true June 2020 strip is rallying hard," Mr Turnbull tweeted. "Markets aren't shock jocks. Participants get paid to be right and fired if they are wrong. It is crystal clear what those with the right incentives think about what scrapping the NEG means – prices will rise."

Labor's energy spokesman Mark Butler also linked the spike in prices to policy chaos, telling ABC Radio National on Friday that futures prices "have again started to spike in recent weeks for contracts in 2019 and 2020 because of the investor uncertainty that the sort of Game of Thrones experience of the national Parliament over the last couple of weeks has introduced".

"It just reinforces that importance of investor certainty and I think if anything was naive, the idea Angus Taylor outlined yesterday that government has no role in underpinning investor certainty in a mixed economy was just bizarre."

Australian Financial Review

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