Chapter 3Curbing energy prices for households, business and industry
3.1Relentlessly increasing energy prices represent a significant burden for Australian households and businesses, as identified in the committee’s First Interim Report, which found:
Finding 6: Energy prices have risen and are a major contributing factor to the cost of living crisis in all sectors of the economy.
Finding 7: More supply of energy will reduce the cost of energy.
3.2This chapter briefly recaps these findings, before considering evidence received since that report on cost of living pressures caused by energy prices on households, businesses and industry. It then sets out the committee’s view and recommendations.
Energy price rises to date
3.3In August 2023, the Treasury’s Assistant Secretary of the Macroeconomic Conditions Division, Ms Ineke Redmond, outlined recent trends in energy prices for the committee:
Earlier in the [COVID-19] pandemic there were in fact price falls for retail electricity. So that brought our levels down. Then there was a sharp increase, particularly from the global situation with the invasion of Ukraine, and that coincided with domestic market disruptions, a variety of events, including bad weather and floods, but also the unreliability we had mentioned just earlier with some of these ageing coal plants. The combination of those disruptions saw quite a spike in terms of the spot prices through last year.
3.4Mr Luke Yeaman, the Deputy Secretary of the Treasury’s Macroeconomic Group, informed the committee in early 2023 that estimates were for electricity prices to rise by 23 per cent in the 2023–24 financial year, even considering Budget measures in place targeting high energy prices.
3.5Early indicators for 2024 suggest that price rises in energy may be attenuating, at least for the wholesale market, even if this has not translated into lower bills for consumers.
3.6However, the unpredictability of recent market dynamics, driven in large part by interventions from Government has meant uncertainty in price and supply remains for many Australian households and businesses.
3.7As MST Marquee energy analyst Saul Kavonic stated, the Government’s interventions have undermined investor confidence in the sector and pushed gas prices higher than if it had done nothing:
End users are now paying a premium to lock in prices when contracting ahead, in order to compensate for the heightened risk of gas shortages and price spikes that Labor’s policy intervention has caused.
3.8Evidence discussed below suggests that, despite some predictions that price hikes may be slowing or indeed the Prime Minister’s commitment to decrease bills by $275. Successive record price rises indicate the opposite–that the price of electricity is at an all-time high.
The impact on households
3.9Many households are still incredibly stretched by large power bills, and businesses of all sizes continue to struggle with higher energy costs, and any improvements in prices are yet to be passed on by energy companies.
3.10This was clear in evidence to the committee. For example, Energy Consumers Australia noted that its survey indicated that the number one concern reflected was the affordability of energy, and that this was consistent across all households, not just those of lower socioeconomic status:
We regularly survey 2,000 households and 500 small businesses, and the thing that they tell us that will not surprise the committee is that their No. 1 concern is energy affordability. They are concerned for their own affordability and whether they're able to pay their bills, but they're also concerned for their friends, their families, their neighbours—for people they know. So, even if they are not struggling to pay energy bills, there is a genuine concern.
3.11Energy companies told the committee that they were seeing more households struggling:
EnergyAustralia reported a doubling of its customers seeking hardship support with their energy bills for the first time, representing an increase from less than 1 per cent to 1.7per cent of its total number of customers from August 2022 to August2023;
Origin Energy reported a 22 per cent increase in residential customers being supported through its hardship program from June 2022 to June 2023; and
AGL Energy reported a 20 per cent increase over previous months in the number of customers who were seeking support with their energy bills. AGL Energy attributed this to both rising energy costs and broader cost of living pressures undermining the ability of its customers to make ends meet.
3.12In November 2023, the Australian Energy Regulator (AER) released a report that confirmed that a record number of Australians were struggling to pay power bills due to relentlessly increasing energy prices. It found that in the 2022–23 financial year, electricity prices rose between 12 and 28 percent in New South Wales (NSW), Queensland, South Australia, Tasmania and the Australian Capital Territory (ACT), and between 5 and 11percent in Victoria. The AER suggested that the percentage of households in 'energy debt' increased to 2.9 per cent (from 2.5 per cent), and those accessing hardship programs increased to 1.4 per cent (from 1.1 per cent).
3.13As noted in the First Interim Report, Ms Clare Savage, Chair of the AER, told the committee that there had been a 12 per cent increase in the number of customers on hardship relief programs. She suggested that the impact of energy prices was disproportionally felt by lower-income individuals and families, as they:
…tend to live in the poorest housing conditions, they have the least energy efficient homes, they are least able to access solar and batteries, which are ways of avoiding network and wholesale costs, and so they tend to pay more with less income.
3.14Further data released by the AER in March 2024 shows that between June 2022 and December 2023 (18 months) the number of households on financial hardship for electricity increased by 59 per cent. The number of households on financial hardship had increased by 70 per cent for gas.
3.15The reality that ordinary Australians customers are experiencing goes beyond statistics presented in corporate reports. Responses to the committee’s survey illustrate the pain experienced by Australians:
We are now under pressure like never before simply to afford power and gas bills. I am not using heating because of the cost.
The main thing we do is to not run our heating unless absolutely needed. So our house is freezing most of the time. Never had we had to choose between heating & making the budget ever in our lives.
3.16Other evidence received by the committee confirmed that it was often the most vulnerable who were most at risk from unpredictable or large energy price rises. For example, the Australian Council of Social Service (ACOSS) noted its research indicated that 70 per cent of respondents were reducing their use of heating, and half of respondents reported that they were in energy debt or were expecting to go into energy debt.
3.17Ms Jessica Miller, a Policy Officer for the Combined Pensioners and Superannuants Association, also noted that many older Australians struggled with energy costs:
Energy bills are rising. While this is affecting everybody, it's especially difficult for those on low incomes, who were already struggling to afford everyday expenses, particularly those receiving income support payments.
3.18Ms Zoe Robinson, the New South Wales Advocate for Children and Young People, told the committee that she was aware that many young people were forced to choose between utilities–particularly energy–and other basic necessities.
3.19This is supported in evidence from survey responses, with one respondent writing: 'We only heat the house at night now. We have cut back on showering and washing of hair because of the cost of heating water'.
3.20Anglicare noted that, even those receiving some hardship relief struggled to reduce their energy debt. The Consumer Action Law Centre highlighted that people having difficulty paying electricity bills could be 'the canary in the coalmine' indicating deeper financial struggles such as housing arrears, day-to-day living expenses, and potentially living off credit and debt, including buy now pay later schemes.
3.21This was echoed in other evidence received by the committee from everyday Australians. Energy was the second biggest cost of living concern for respondents, only after food and groceries. Many noted they had changed their behaviour to save money, in particular, as noted above, many were reducing the use of heating. Some representative comments noted:
We have so many natural energy resources yet we pay such high prices for energy which is the biggest input to the cost of living.
Have to watch every dollar spent, power usage, high rates, high power bills.
…my mother is having a hard time affording her power bills and staying warm.
…we already chose not to use our heater or coolers as much as others to reduce our power bills. We are forgotten about when it comes to energy efficiency and climate change, all the money is for homeowners to upgrade their homes nothing to help renters. It means that we are stuck with the most expensive homes to heat and cool while being on the lowest incomes.
Energy prices are exorbitant and we have reduced our usage and have solar.
We don't use our gas heating anymore, & instead just bundle up with our daughter all in the one room at night (so it's easier to keep warm).
Going to bed early so as not to turn on heating.
I have had to go without heating this winter in NE Victoria. Consequently I believe I now have mould in my house. I am having to support my parents as they need heating more then me. Basically I have also been sick all winter with coughs and respiratory issues due to this. However, it is buy food, pay the bills and pay my parents heating, and not having this extravagance for myself
I’m too scared to put heating on, so extra clothes and a blanket.
No heating, bath once a week, other days just wash. Only one light on in the evening. Only watch TV for 2 hrs day. Read mostly during the day. Electric blanket on at night for 5 mins just to warm bed. Make frozen meals in microwave as cooking is too expensive.
My kids have had to go without a lot of stuff. I skip meals. We haven’t used the heating this winter but I know the bill will still be huge.
So much of the rise in the cost of food production has to do with the enormous increased power bills faced by farmers (dairy) and producers which of course gets passed on to the consumer.
Businesses and under pressure
3.22The committee also heard that the business sector was very vulnerable to high energy costs, particularly small to medium sized enterprises.
3.23Mr David Harding, the Executive Director of Business NSW, suggested that the cost of energy was the number one concern for business, and a key component of what it called a 'cost of doing business crisis'. Mr Harding noted this crisis was worsening, driven by a recent 'doubling of energy costs, as well as in gas [and] major rises in electricity'.
3.24This sentiment was shared by many others representing the business sector. The Council of Small Business Organisations Australia (COSBOA) also identified rises in energy costs as the greatest risk to small businesses, with 41percent of respondents to a recent survey identifying energy as a risk to their business’ viability. Concerningly, almost one-third noted ‘energy hardship in paying their bill 'as a direct result of the COVID-19 pandemic', and one-in-five had an energy service debt they were paying off when surveyed in March 2022.
3.25Similarly, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) noted small and family-run enterprises were particularly sensitive to energy price rises:
Owing to their limited bargaining power, small business input costs and sentiments are inherently more responsive to energy price shocks than their larger counterparts…The volatility of these key business inputs constraint discourage business investment, and was nominated as the highest pressure faced by almost half of the 1,000 small and medium enterprise respondents in the MYOB 2022 survey.Persistently high energy costs also diminish business profit margins through lower sales revenue, as rising household costs reduce consumer disposable income.
3.26COSBOA also noted that the shock of energy rises can contribute to significantly higher operational costs, which are then passed onto consumers, further increasing the cost of living.
3.27The evidence noted that hospitality businesses were suffering, as increasing costs–including energy–was making it difficult to stay viable and competitive. For example, Mr Foulkes of the Cabramatta Chamber of Commerce noted that:
The price of gas and electricity puts pressure on those restaurants in particular. They can't put their prices up. If they do put their prices up… they go out of business because they can't compete. It is a big problem.
3.28Mr Michael Bailey, Chief Executive Officer of the Tasmanian Chamber of Commerce and Industry, suggested that current price-pressures faced by business lead to a choice between cutting their expenses, most often staff, or to pass on costs to consumers, which drives inflation and cost of living pressures for their community. He told the committee:
…with a lot of these pressures that businesses are facing [including energy], they're really left with not much they can do to address that, other than to increase what they're charging for their products and services or to cut jobs. Each of those decisions has a significant impact on the day-to-day lives of Australians.
3.29The Tasmanian Small Business Council told the committee that higher costs of doing business that were passed on to consumers, compounded the cost of living pressures they were already subject to:
Resources and energy costs moved first and flowed through to consumer price increases. Energy prices, which impact every household, are still rising, and the rate of increase has never been greater. So, too, is the cost of money. Interest rate increases impact on households and businesses; thus, the consumer is hit twice.
Charitable organisations struggling to keep the lights on
3.30The committee also understands that many charitable organisations are also inhibited in their work because of skyrocketing energy bills that impact their operational costs, and compound other price increases.
3.31For example, Mr Pattinson from Foodbank commented that his organisation had tried to reduce its energy costs, but:
Unfortunately, what it means is, if prices continue to go up, we will have to recoup those prices somewhere. We do charge a small amount for some of our foods. If power prices continue to go up, we will then have to pass on some of those prices to either the agencies that get food from us or to the families who come to our food hubs to shop. That's not something we want to do. We would prefer to reduce what we call our handling fees to be able to make it easier for people to get more food.
3.32The pressures charities are under is discussed in chapter 4 of this report, including increased overheads that are putting pressure on the operating budgets of many not-for-profits.
Poorly-targeted intervention in the energy market
3.33From 11 September 2023, there has been a mandatory Gas Code of Conduct in force under the Commonwealth’s Competition and Consumer Act 2010, to 'ensure that east coast gas users can contract for gas at reasonable prices and on reasonable terms'. This includes:
a cap on the price that producers can sell to buyers, initially set at $12 per gigajoule;
an exemptions framework;
transparency obligations; and
conduct provisions.
3.34EnergyAustralia and AGL Energy stated it was 'too early to tell' what impact the Gas Code of Conduct may have on energy prices, and insisted the best way to bring down prices was to increase supply.
3.35Woodside told the committee that the mandatory Gas Code of Conduct would drive up compliance costs whilst 'making investment more and more challenging'.
3.36Ms Samantha McCulloch, Chief Executive of the Australian Petroleum Production and Exploration Association (APPEA), highlighted recent analysis that found the uncertainty from Government intervention could increase gas prices in the long term by 'as much as 40percent over and above where they would have been without government intervention'. Noting that certain gas projects had been impeded by the new regulatory approach, she told the committee:
We have seen how disruptive this intervention has been while delivering limited, if any, actual cost-of-living relief to consumers.
The need to increase energy supply
3.37Some stakeholders cautioned that Australian industries were becoming less competitive globally due to relatively higher domestic energy costs. It was argued that the Government should work to increase supply, particularly in gas, but also allowing consideration of nuclear generation.
3.38For example, the Minerals Council of Australia (MCA) argued that a diverse mix of energy sources was needed to bring down energy prices, noting that other countries had the advantage of cheap nuclear energy to draw on:
We need to see coal abated, we need to see gas abated, and we need to see nuclear energy, bioenergy and hydrogen, as well as what is being done very well at the moment, which is solar and wind. We need a broad base of energy sources in order to be as competitive as we possibly can. The broader the mix, the lower the cost, because you reduce your risk across the whole system. That's what we're seeing elsewhere in the world, and that's what we need to make sure that we get right in Australia to bring down the costs overall. That is directly related to cost-of-living issues for all Australians.
3.39The MCA further argued against direct subsidies to households, arguing Government policies should increase supply to bring down prices.
3.40Experts told the committee that recent energy price volatility was the result of underinvestment in new supply, particularly in existing gas sector. It was noted that this should be rectified to ensure energy security and reduction in prices for consumers, as well as to create certainty for investors and the energy sector.
3.41On underinvestment in natural gas and the uncertainty created by Government policy and legislative changes. Ms Samantha McCulloch of APPEA stated that:
New gas supply is the key to putting sustained downward pressure on prices. This was confirmed last week by the ACCC in its most recent gas inquiry report, which highlights that avoiding long-term supply shortfalls will require development of new supply, in particular in the southern states. The recent government interventions in the market are exacerbating, not easing, the situation. The 12-month price cap and ongoing price regulation proposed as part of the mandatory code of conduct have brought enormous uncertainty to the market. These measures will result in less investment in supply, ultimately increasing gas prices, which is the opposite of what the ACCC says is needed. We have already seen investment in new supply being halted due to these interventions.
3.42ExxonMobil Australia told the committee that industry regulation had led to prolonged delays and a lack of investment in new gas supplies in Australia, leading to lower levels of production that would result in higher prices and higher costs for business.
3.43Santos also emphasised the negative impact of lengthy approvals processes for new gas projects, which it claimed was undermining supply:
Everybody in the industry would agree that we need and want robust environmental approval processes that give the community confidence that projects we develop are going to be safe, protect water resources, protect the environment and so on. However, the time that it takes to go through those processes and subsequent appeals processes is a huge impost on being able to get to final investment decisions for the projects that are needed to bring on in the gas industry. I think it's not just the gas sector. It's other sectors as well, including renewable energy.
3.44Glencore concurred with this position, suggesting its business had been impacted by 'a level of instability' in a number of critical policy areas over the last decade, including lifting taxes and royalties to Commonwealth and state governments, as well as:
….when you look at project approvals in Australia—they're critical to our future investment pipeline—for our business in the mining sector over that 10-year period, I think you would've seen an increase in red tape. You've probably gone from, on average, three to four years for a project approval to now, where I think you're probably looking at five to eight years just to get a decision, and then, obviously, any further kind of legal challenge is after that. That also gets factored into a range of considerations when you're making billion-dollar-plus investments in Australia.
3.45ConocoPhillips agreed, suggesting that 'bringing down prices will rely on increased supply', recommending that the Government not impose further regulatory requirements to allow industry to accommodate recent changes.
3.46Others noted that Government intervention in the market had made it more difficult for established resource companies, while also discouraging new investment. For example, Ampol highlighted that they would have to invest significantly to meet the regulatory impact of changes to the fuel standards and the safeguard mechanism, adding:
While preparing for these regulatory changes, we are also investing to support the energy transition to ensure we can meet our customers' energy needs as the world transitions away from fossil fuels. The costs associated with meeting these policy priorities and building these new solutions will ultimately be paid for by consumers. So you can see there are trade-offs to be made between the cost of living, fuel security and the energy transition.
3.47Additionally, Ms McCulloch advocated for a new approach from Government, prioritising projects, and removing conditions that stifle investment and push up energy costs:
To bring on new supply we need governments to prioritise projects that have stalled due to approval delays and red tape, and to provide regulatory certainty to bring back investor confidence to secure Australia's future energy needs… uncertain regulatory regimes and bans are stifling investment in new supply.
Nuclear as a potential energy source
3.48Australia is currently the only G20 nation that has a legislated ban on nuclear energy, which has been in operation since 1998. The committee received some evidence suggesting that this prohibition should be lifted, to allow nuclear energy to be part of the conversation about Australia’s energy future, given its potential as a clean, green and cheap source of power.
3.49For example, Ms Constable of the MCA commented to the committee that it was time for this prohibition to be lifted and for all options to be considered, given the challenges Australia faces:
Compounding these [current] cost pressures is the alarming proposition that Australia has ceded its natural advantages on energy. We keep saying no to viable alternatives—options that will put downward pressure on energy prices. We keep placing all our eggs in one basket. We're saying no to gas. We're saying no to nuclear. We're saying no to carbon capture and storage. We're saying no to bioenergy. It is electrification or bust, and our businesses and consumers are paying for it. If you want to address the cost of living and the cost of doing business, put every energy option on the table.
3.50Mr Mark Samter, a Senior Research Analyst for MST Marquee, told the committee that:
…as an observer of energy markets, I've seen the success of nuclear. That's why it's very clear to me that objections are not based on sound economic fundamentals; they're based on ideology. I think it absolutely needs to form a sensible part of the debate…
Cost of Living survey attitudes towards nuclear
3.51The cost of living survey undertaken by the committee clearly demonstrated that many everyday Australians were struggling with their power bills, and that they perceived that the Government’s energy policy would not lower prices or ensure long-term energy security for Australia.
3.52It was also clear that many sought a more sensible and nuanced mix of energy sources, which incorporated existing coal, gas and renewable generation, alongside new options, including nuclear:
We are an outstanding failure among developed nations for not hardening our nation with safe, clean, economical and reliable nuclear energy.
We should do the same, even embracing nuclear, not these ridiculous wind and solar farms that destroy our beautiful country and farmland.
We have so many natural energy resources yet we pay such high prices for energy which is the biggest input to the cost of living.
Provide base load power such as nuclear modules to replace redundant coal fired power stations and open up more gas fields to put downward pressure on artificially induced supply shortages.
Remove the ban on nuclear & let the market decide if it is a good investment.
We need reliable energy 24/7… gas is a must. nuclear is a must using existing infrastructure
[We need a] mature energy policy which includes nuclear & renewables.
The government needs to view countries like Finland that have some of the lowest energy bills globally [because of nuclear generation].
[cost pressures have been caused by] successive governments wanting to close down our cheap energy i.e. coal fired power stations. At the very least we must have nuclear power and retain some coal fired power stations.
Committee view
3.53One of the Albanese Government’s key commitments in the last Federal Election was to ease cost of living pressures on everyday Australians by reducing power bills by a $275 a year and for power prices to fall by 2025.
3.54This commitment failed to happen. Instead, power bills have increased dramatically, by an average of 26 per cent in 2023 alone, driven initially by temporary ‘shock’ increases in coal and gas prices following Russia’s invasion of Ukraine, and compounded by the Albanese Government’s unwillingness to support traditional energy sources, while renewables are yet to come online to guarantee the base load, affordable energy that Australians need.
3.55Evidence received by the committee shows that the majority of Australians are concerned about their power bills. More individuals are turning to hardship relief offered by energy companies to help them struggle with the cost of living, including unprecedented rises in costs of electricity and gas. This disproportionately falls on the vulnerable who are already at-risk.
3.56Similarly, business and industry are struggling with high and unpredictable energy costs. Small businesses are caught in the dilemma of reducing costs or raising prices for consumers, which either puts people out of work, or increases the cost of living for us all.
3.57The primary resources sector and manufacturing industry is also trying to deal with unpredictability in the energy market, and the uncertainty of Government intervention that has compliance and regulatory burdens. Again, this creates the risk of Australians losing their jobs, while also being hit with the rising cost of necessities.
3.58An understanding of the current energy price crisis driven by shortfall in supply was apparent in evidence to the committee from industry, business, and policy experts. However, it was also clear in evidence provided by everyday Australians and other stakeholders, who clearly had a sophisticated understanding of the problems our nation faces.
3.59Once again, the committee considers that the Albanese Government should reconsider its policies in this area, and come good on its broken promise to lower electricity prices for everyday Australians.
3.60The committee recommends that the Australian Government should remove arbitrary price controls from interventions that have the impact of discouraging the investment that will deliver greater supply and lower energy prices for individuals and businesses.
3.61The committee recommends that the Australian Government should develop a clear agenda to reduce red and green tape and limit lawfare in order to facilitate more investment in Australia’s natural gas sector to increase supply and lower energy prices in the medium and long term.
3.62The committee recommends that the Australian Government should lift Australia's ban on nuclear energy, to allow consideration of it as a cost-efficient, reliable and low-emissions energy source.