Power costs will keep hurting business: Ai Group

Australian Industry Group (Ai Group) head Innes Willox addressed the Re-powering New South Wales Conference in Sydney, centring his subject on the increasing cost of energy.

Mr Willox said the wholesale price of electricity, traditionally costing around 4cents a kWh, but drought, increases to gas prices and states transitioning to renewables had increased that price to 6cents kWh and in South Australia 10cents per kWh.

“Ai Group’s members in South Australia are extremely distressed, not just about blackouts, but about the 50 to 120 per cent increases they are finding as they seek new electricity contracts,” Mr Willox said.

“Prices in the national electricity market are going to have to reflect the expected cost of new electricity generation to replace and expand our fleet.”

Mr Willox warned the audience research by AI Group indicated that once new renewable energy plants were built, consumers could not expect to see a 4cent per kWh wholesale rate again, and the rate could be as high as 12cents per kWh.

“This all sounds pretty downbeat: authoritative projections seem to say ‘everything is awful, and also very expensive’,” he said.

“For those of us who pay a fair amount of attention to energy issues, and who have internalised these sorts of projections, it may be hard to get up in the morning.

“Ai Group’s membership includes many energy intensive manufacturers and if these projections represent the future, why would they ever reinvest in Australia?”

Sentiments echoed by Dr Glenn Platt, energy scientist formerly with the CSIRO and founder of Evergen a smart energy start up specialising in microgrids, who said for large commercial and industrial businesses, the economics weren’t there to use renewables.

“It is technically possible you could have a huge amount of energy storage and localised renewable generation to back it up,” Dr Platt said.

“But it would be uneconomic and that makes things difficult.

“What countries like Japan and Korea have done is support distributive technologies with gas generation. Its not renewable, but its another step towards higher efficiency generation.”

Mr Willox said if other nations were experiencing the same increase in energy costs, Australia would remain competitive.

“But for every technology Australian projected costs are higher than overseas actuals, particularly for wind and solar where there is a yawning gap,” he said.

“Competitive wind projects in the United States, Mexico and Chile are being built for 4-6cents a kWh. That’s 4-5cents cheaper than the Australian projection.”

Mr Willox questioned whether building costs of renewables plants were too high in Australia.

“Construction sector costs, productivity and industrial relations are a plausible factor,” he said.

“We’ve seen cost escalation on all sorts of major projects in recent years, from LNG terminals to desalination plants.

“Finance costs are also a likely contributor. While risk-free debt is currently cheap worldwide, investors’ expectations for returns, appetite for risk and assessment of risk may be different in Australia.

“Certainly we have had energy and climate policies that are both very unstable and place nearly all risk with investors.

“Meanwhile, the overseas projects we’ve charted almost all involve twenty-year power purchase agreements backed by governments or monopoly utilities.”

The New South Wales Re-powering conference will continue until Friday.