The closure of coal-fired power stations has contributed to the rise in energy costs for consumers.
The closure of coal-fired power stations has contributed to the rise in energy costs for consumers.

Consumers ripped off an extra $2b on power bills

CONSUMERS have been ripped off an extra $2 billion a year by the three big energy retailers and state-owned power companies, compared with just three years ago.

But a report out today says government intervention in the market is having the bigger impact in pushing up power prices and will keep them higher for longer unless a change is made.

The new Grattan Energy report found the annual cost of wholesale power prices nationwide had increased by $8 billion compared to 2015.

The increased profits of large power retailers and government-owned electricity assets responsible for 25 per cent of the price hike.

But by far the biggest factor in the increase, about two-thirds, came from increased costs of generating electricity caused by the closure of coal-fired power stations as well as higher gas and coal costs.

Policy confusion and direct intervention has put more pressure on power prices than company profits, according to the latest Grattan Energy report.
Policy confusion and direct intervention has put more pressure on power prices than company profits, according to the latest Grattan Energy report.

Investors have been slow to build new power generation, which would bring prices down, because of policy confusion and intervention from governments, the report found.

It warned this would only get worse unless the Federal Government pulled back from interventionist policies, like it's "big stick" legislation and Snowy 2.0, and if state governments sorted out their "uncoordinated and chaotic" emissions reduction policies.

"Private investors will build less often and later if they must constantly second-guess what governments will do," the report stated.

"If governments can show restraint and pull back from these ad hoc interventions, investors can deliver new generation capacity".

For the past three years wholesale power prices have cost about $17-19 billion each year, an increase of $8 billion from the two years prior to that.

About $1 billion of that increase was driven by increased profits from AGL, Origin and EnergyAustralia and another $1 billion in increased profits from government-owned companies, according to the report.

But the vast bulk has been driven by the closure of coal-fired power stations, as well as increased costs of gas and coal.

Grattan Institute energy report co-author Tony Wood.
Grattan Institute energy report co-author Tony Wood.

Report co-author Tony Wood said company bashing would not help, as profits had peaked and were likely to decline as more investment comes online.

He said state governments should develop and agree to their own emission reduction target, without Commonwealth involvement, to create consistency and certainty for investors.

Energy Minister Angus Taylor said blaming the government was like blaming an ambulance for turning up at an accident.

"The lack of reliable investment in the last decade has led to significant cost and reliability pressures in some jurisdictions, and it is the Commonwealth Government that is driving the agenda to fix this major problem," he said.