Where we stand price-wise

Readers will remember the fuss made earlier this year when energy-intensive users claimed Australian electricity prices were among the world’s highest.

In response I posted a commentary on this site (“Shocking news,” 26 March) that highlighted the NUS Consulting Group review of industrial power charges for 2011 – in which Australia ranked thirteenth cheapest out of the 16 countries surveyed.

NUS has now published its 2012 review and this shows Australia led this group of countries in the past year in industrial power prices rises but was not alone in pushing up costs – the increase here was 27.8 per cent, exceeding South Africa’s 23.1 per cent, Sweden’s 22.8 per cent Italy’s 18.4 per cent and Britain’s 12.3 per cent.

The new NUS review has shoved Australia five places up the table to seventh most expensive, still a long way short of the priciest nations in Europe but also now a lot more expensive than the lowest-cost countries in this survey.

Numbers like these are an additional reminder of why the uncompetitive Australian automotive industry and the struggling steel industry, to name but two, are unhappy about our energy costs.

NUS doesn’t include South Korea, Japan or Brazil in its comparisons – and it doesn’t deal with developing economies, often the biggest competitors for Australian businesses.

The Brazilian situation is particularly interesting at the moment because President Dilma Rousseff has intervened this month to announce huge electricity bill cuts – saying industrial charges will fall by up to 28 per cent and residential bills by 16.2 per cent on average.

The changes will take effect in the world’s sixth biggest economy early in 2013.

Brazil’s average electricity cost has soared with the economic boom there despite the country relying substantially on hydro-power – and current industrial prices are exceeded only by Italy and Slovakia, according to a Reuters report.

One of the outcomes has been the exodus of Brazil’s aluminium industry.

Manufacturing production there has fallen 5.3 per cent in a year and industrialists are pointing out that power bills are only one aspect of the so-called “Brazil cost” – others being high taxes, too much red tape and bottlenecks in developing essential infrastructure.

(Does this list have an oddly familiar ring to it?)

The 2012 NUS ladder in descending order (from the most expensive) and in US cents per kilowatt hour reads like this: Italy (20.23), Germany (15.15), Portugal (13.63), Spain (13.52), Britain (12.45), Belgium (11.92), Australia (11.68), Netherlands (11.28), Austria (11.05), Poland (9.3), South Africa (9.13, America (8.89), France (8.76), Finland (8.64), Sweden (7.95) and Canada (7.58).

NUS notes that the Australian increase represents the impact of higher network charges and the introduction of the carbon tax.

It points out that the local commodity cost of electricity actually decreased by 5.13 per cent over the past year, highlighting the impact of network prices in particular.

The consultants also provide a review of gas prices for the same group of industrialised countries.

Here Australia is the third cheapest of 16 nations, outdone only by the United States and Canada.

Of course, manufacturers on the east coast here are freaking out over the prospects for gas prices going much higher in the wake of the Queensland LNG developments.

Domestic gas prices are around $2.60 per gigajoule (in our money) in the US and $2.10 in Canada. This compares with $8-12 in Western Australia at present and $4-6 on the east coast, with some new contracts reportedly being signed as high as $10.

For Australia, NUS comments that forward pricing for gas reveals modest increases are likely in the next year but sharp rises can be expected from 2014 when the flowback from LNG exports starts to impact on the east coast.

The notable feature of the gas table is the huge reduction in the American prices, brought on by the shale revolution – a fall of 27.8 per cent where Australia recorded a year-on-year rise of 10.8 per cent.

The most expensive four countries on the gas ladder are Sweden, South Africa, Finland and Germany.

While most of the local media coverage on energy price rises focusses on households, their role in adding to input cost pressure for manufacturing is a key current economic issue, helping to exacerbate a situation where, as was recently reported, Australia has become the world’s sixth most expensive place for this sector, mainly as a result of the exchange rate.

Up until about 2008, manufacturing costs in Australia were cheaper than in the US, reports say, but now they are about 20 per cent higher.

American industrial power prices fell by 6.2 per cent between 2011 and 2012, according to the NUS survey, mirroring the impact on generation costs of a large decrease in natural gas prices.

(On the other hand, American residential power costs rose by about one per cent and average 11.91c per kilowatt hour at present, according to the US Energy Information Agency, compared with the NUS industrial figure of 8.89c.

(The key driver of these household prices, Australians will not be surprised to hear, is the cost of actually delivering electricity – the networks.

(These account for 40 percent of the US household bill on average and have been rising fast, eating up any potential savings from the lower wholesale cost. production of electricity. Like here, American networks are in a large investment mode, spending about $US27 billion annually, after years of reduced capex activity.)

The power supply environment, both here and abroad, is not uncomplicated, but the new NUS material highlights the fact that, whatever the reasons for local increases (beyond the pejorative “gouging” some highlight and the inefficiencies others allege), Australia is no longer a cheap place for electricity – and this was happening without carbon pricing.

We are still waiting for an in-depth analysis of what this portends.

Comments are closed.