Energy Crisis Explained: “A Dangerous Storm” - Salt 106.5

Energy Crisis Explained: “A Dangerous Storm”

At the height of winter, an energy crisis has gripped NSW and Queensland. Hope explains why, and what's in store for the future.

By Salt 106.5 Network Saturday 18 Jun 2022NewsReading Time: 4 minutes

Threats of blackouts, energy prices soaring, and a minister pleading for people not to use their dishwashers – how did we get here?

Australia’s east was plunged into an energy crisis this week, with newly minted Federal Energy Minister Chris Bowen calling it a “perfect storm”.

On Wednesday, NSW Energy Minister Matt Kean warned that energy supply would be tight, and gave some curious recommendations.

“We’re not telling people to turn off their heating,” he said. “We’re just saying maybe if you’re washing the dishwasher at 7.30pm to delay it until 8.30pm.”

What has caused all this? In a nutshell, there are four factors:

  • Failing coal-powered generators;
  • The war in Ukraine;
  • Sudden gas demand;
  • Winter.

Failing generators

Because coal is being phased out (due to the fossil fuel’s role in causing climate change), many of the old coal-fired power stations in NSW and Queensland aren’t being maintained as well as they should be.

And NSW and Queensland rely heavily on coal, because of their access to the fossil fuel. (In contrast, WA relies more on natural gas for its energy supply, and Victoria relies on gas for its heating.)

This is leading to the failing of coal-fired generators.

“So gas is being called to step in,” the Grattan Institute’s Energy and Climate Change Program Director Tony Wood said.

Indeed, the power stations automatically switch to their back-up gas-powered generators when the coal-fired generators fail.

So, NSW and Queensland energy companies are using more gas.

NSW and Queensland energy companies are using more gas.

War

Now, because of Russia’s ongoing war with Ukraine, many European countries no longer want to rely on Russia for its gas supply.

So they are turning to other counties, including Australia, for their gas.

Soaring gas prices

With that in mind, when an Australian energy company is buying gas to power their generators, “the people who can provide [the gas] are saying, “You know what? I can export that gas for a lot more than you’re prepared to pay. Here’s the price,” Mr Wood said.

And at such high prices, there is little or no profit for the energy company.

“It’s a very dangerous storm, and it’s causing a bit of damage,” Mr Wood said. “The market operator has been warning, ‘This problem is coming.’ But nothing’s been done about it.”

“The market operator has been warning, ‘This problem is coming.’ But nothing’s been done about it,” – Grattan Institute’s Tony Wood

It’s cold!

Combine all that with the fact that the mercury has plunged in the east and the demand for heat – and energy – has spiked. But if the energy companies aren’t making a profit, or even losing money, why should they provide their product?

Intervention

Amid claims that energy providers did not want to run plants under the $300 a megawatt-hour price threshold (to do so would mean they would not be making a profit), on Wednesday the Australian Energy Market Operator (AEMO) seized control of the National Electricity Market (NEM).

This was to ensure every household and business continued to have a source of energy.

“In the current situation, suspending the market is the best way to ensure a reliable supply of electricity for Australian homes and businesses,” AEMO CEO Daniel Westerman said in a statement.

“In the current situation, suspending the market is the best way to ensure a reliable supply of electricity for Australian homes and businesses,” – AEMO CEO Daniel Westerman

Energy Minister Bowen said that AEMO taking this action “will help the NEM alleviate the unplanned withdrawal of generation from the wholesale market”.

“This is the best way to make sure the lights stay on and AEMO has the government’s full support in taking this action,” he said.

Mr Bowen added, “It means that the operator is effectively determining the best way for Australia’s energy to be generated and processed and paid for and provided to consumers while the market simply wasn’t functioning.”

No quick fix

Still, this does not mean the problem is over.

Much work needs to be done in ensuring Australia’s energy companies are able to operate as profitable businesses while continuing to supply energy to homes and businesses.

“You can’t rush in and fix this,” Mr Wood said in a Grattan Institute podcast. “But taking a considered view but still making sure there is going to be action, is what I think they’ll do. We’ll see how that plays out.”

Feature image: Getty