On Thursday, June 16, Australia’s Energy Minister, Chris Bowen, urged residents of New South Wales (NSW), the country’s most populous state, to conserve energy as much as possible during peak demand hours of 6 p.m. to 8 p.m. to avoid blackouts. Australia is the world’s largest exporter of coal and liquefied natural gas, on basis of this, Mr Bowen, expressed confidence that the administration would be able to avoid blackouts.
This happened just a day after the Australian Energy Market Operator (AEMO) suspended the wholesale electricity market for the East Coast, which encompasses five of Australia’s six states, in an unprecedented action amid the ongoing power crisis. The power market, according to AEMO, has become “difficult to operate” while assuring a dependable and secure supply of electricity to Australians.
Causes contributing to this crisis-
Since May, Australia’s energy sector has been in a state of flux. The new Federal Treasurer, Jim Chalmers, warned in a speech on June 1 that the country’s energy sector was facing a “perfect storm” of conditions, citing disclosures that gas prices in Victoria were 50 times the normal average.
Early winter: Due to the power shortage, a cold snap caused by the early onset of winter increased up gas demand for heating families, while gas had to be diverted to light up gas-fired power plants. Meanwhile, east coast LNG exporters have been selling as much gas as possible into the export market rather than relying on Russian supply. The exporters were ordered by the market operator to send any uncontracted gas into the domestic market, which they did two weeks ago, but it wasn’t enough
Ageing coal plants: Australia is a country which is still dependent on coal for generating two-thirds of its power. The country’s coal-fired power plants are getting older and aren’t in good shape. Many of these have been designated for closure as well. According to Reuters, about a quarter of the eastern market’s 23 gigawatts of coal-fired power has been unavailable in the last month, with as much as a third of the capacity unusable at times.
Setback on domestic coal production: Heavy flooding in NSW and Queensland earlier this year impacted mine capacity, reducing domestic coal production. Furthermore, output at the two mines that supply the NEM’s largest coal-fired plant, the Eraring power station in New South Wales, has been reduced due to technical issues.
Skyrocketing prices of coal and gas The current Russia-Ukraine crisis, as well as Russian sanctions, have wreaked havoc on global supply lines. Many Australian power generators were compelled to secure oil and gas on spot markets due to unanticipated domestic shortages, driving up production prices. Domestic gas prices soared to the point where the Australian Energy Market Operator (AEMO) intervened to set a price cap of A$40 per gigajoule (GJ).
The AEMO introduced the A$300 price cap in response to the growing prices of raw resources such as coal and gas, which had a domino effect on power prices.