How Long Can Australia’s Energy Crisis Last?

Australia is facing an energy crisis resulting from factors like changes in the weather and Russia’s brutal invasion of Ukraine. This has manifested in several consequences, such as high consumer prices, leading many consumers to turn to renewable energy sources such as solar panels. 

If you want to learn more about how Australia’s energy ecosystem works and how long this ongoing energy crisis might last, feel free to continue reading our blog article. 

How Does Australia’s Energy Ecosystem Work?

The Australia Energy Market Operator (AEMO) operates two electricity spot markets, namely the National Electricity Market (NEM) and the Wholesale Electricity Market (WEM). It is through these two markets that electricity is traded all over the country. 

The National Electricity Market (NEM) serves the country’s five eastern and southeastern states. The states covered by the NEM wholesale market are New South Wales, Queensland, South Australia, Tasmania, and Victoria. The East Coast mainly relies on coal-fired power, making up almost 65% of electricity production and 7% of gas. The remainder is sourced from renewables like solar, wind, and hydropower. 

While the state of Western Australia is not facing the current energy crisis, it’s good to note that the Wholesale Electricity Market (WEM), which is the other market, is responsible for that region. 

On this spot market, power generators usually supply the market with electricity at different prices. The AEMO approves the generators that will produce electricity, giving the cheapest operator top priority. 

Generators hold auctions every five minutes. Similarly, the price is decided every five minutes. Retailers then purchase electricity, which they then supply to households and businesses.

How Did The Energy Crisis Start?

Australia’s electricity prices began increasing rapidly in May 2022, and by June 11, the prices had hit the market cap threshold in Queensland. Later, other states in the NEM market except for Tasmania also reached the threshold. The AEMO communicated that there would be a price cap of A$300, and generators would receive compensation. 

The price cap meant that generators would suffer losses, so they opted to withhold capacity, leading to a difference in demand and supply.

Ultimately, rising energy prices have left consumers with no choice but to rethink how they can save money during the energy crisis.  

Factors That Led To The Energy Crisis

Australia’s energy crisis can be attributed to various conditions affecting its east-coast energy market. Here are the factors causing a storm in Australia’s energy sector:

1). Russia’s Invasion Of Ukraine

Sanctions were imposed on Russian oil following their invasion of Ukraine, which has led to shortages and high prices. These effects have been felt globally, including in Australia. 

2). Outages At Coal-Fired Power Stations

Many of Australia’s coal plants are aging and in poor condition. Some of them have even been marked for closure. This has led to reduced supply while demand remains unchanged, contributing to the crisis.

3). Poor Weather 

Floods in Queensland and New South Wales stalled coal mining affecting energy supplies. 

4). COVID-19 Pandemic

The COVID-19 pandemic also contributed to current energy problems. As COVID-19 restrictions were eased, there was an increase in demand for energy, which was difficult to meet, driving prices up. 

How Long Will the Energy Crisis Last?

The Australian Competition and Consumer Commission (ACCC), in an interim report released in July 2022, stated that Australia’s east coast energy crisis is likely to go past winter 2023. It means electricity and gas prices will remain high in the affected regions. 

The Bottom Line

Australia’s energy problems could keep growing as it’s not fully prepared to transition to renewable energy sources—even as coal plants announce plans to quit operation. Although the government is asking consumers to take measures like turning off lights to conserve energy, this can only be a short-term solution to the problem. 

With that said, increasing solar power production would be a possible option to help reduce the energy supply squeeze. 

GCR Electrical Systems is a leading supplier of solar power systems in Australia and has helped numerous customers install solar power systems. We can do the same for you today!

Please contact us today on (07) 4120 7004 or leave an enquiry.