Coal seam gas (CSG) advocates are running a fear campaign against a backdrop of soaring electricity prices in New South Wales. They claim that unless CSG development in NSW goes ahead, household gas bills will triple.
This is a frightening idea, given the stress already caused by electricity price hikes.
Over the past four years the average power bill in NSW has gone up by 69% on top of inflation. Users face a further 18% price hike this year.
Welfare groups say they are providing record levels of assistance to people unable to pay power bills. Sue King, the director of advocacy at Anglicare, told the July 13 Sydney Morning Herald: “People are choosing between heating and eating.” St Vincent de Paul said help on electricity bills now makes up 28% of all the aid it provides.
Now, people in NSW have been told to accept CSG development or face another rise in the cost of living.
NSW Minister for Resources and Energy, Chris Hartcher, told the August 6 SMH: ''If we fail to secure future energy supplies, it could result in a more than tripling of gas prices for over a million NSW gas consumers.
''We have a responsibility to maintain and improve our state's energy security and central to that is the responsible development of a domestic gas industry.
''A refusal by certain groups to join the rational debate under way on the state's future energy needs shows a reckless willingness to disrupt future household gas supply.''
A report from ACIL Tasman said wholesale electricity prices in NSW would be 11% higher unless the state develops CSG. The report was commissioned and funded by the Australian Petroleum Production and Exploration Association (APPEA) — the peak national body for oil and gas exploration — which represents companies such as Shell, Santos, Origin Energy, British Gas, AGL, PetroChina and ConocoPhillips.
But these claims are based on a number of assumptions.
Assumption one: The Australian gas industry cannot meet NSW demand in the near future.
There are three problems with this. First, it's wrong. NSW has historically got gas from conventional sources in other parts of Australia. In fact, in 2009-10 gas production in NSW made up 0.25% of the Australian total. Australia is already producing so much gas that in 2009-10 about half of gas production in Australia was exported.
Second, it ignores that both household and overall power use in NSW is dropping. The state's power consumption has been going down since 2008-09.
NSW's biggest electricity network owner, Ausgrid, said last year that household demand for power in NSW had dropped 2% a year for the past four years. ABC Online said at the time “it is expected the Australian Energy Market Operator will also announce a fall in power demand of 5 to 6 per cent in the next decade”.
Third, it conflates demand for electricity with demand for gas. People need electricity, and gas is used because it is one of a limited number of options. Those campaigning to stop CSG aren't campaigning against electricity, but to protect land, water and communities from the many documented risks posed by CSG development.
Assumption two: Australia does not develop renewables.
Every scenario modeled by ACIL Tasman assumes that power generation in NSW will mostly come from coal or gas in 2030. It does not compare electricity prices under a large-scale transition to renewables. Its baseline scenario suggests renewables will account for only 6% of NSW energy output in 2030.
This is despite the fact that while renewables are more expensive to build, solar, wind and hydro energy have no ongoing fuel costs and offer lower production costs and price stability. Not to mention lower health and environment costs, or the cost of climate change.
Assumption three: The state or federal government cannot regulate prices or invest in renewables.
Soaring electricity prices and emissions have happened in a context of ongoing deregulation and moves to boost sector profits. Economists Lynne Chester and Alan Morris say the “escalation in prices started about a decade after restructuring commenced. Electricity price increases well above 50% were experienced by most households within a few years.”
The cost of poles and wires is being blamed, but the more important question is why so many poles and wires are being installed.
Network companies have no financial incentive to cut network spending or promote efficiency. Profits are linked to the volume of electricity carried. In fact, the federal government's energy white paper says peak demand over a period of under 40 hours a year adds up to 25% to power costs.
These costs could be knocked out with minor efficiency measures, but this runs counter to the profit motive.
Indeed, Donella Meadows says electricity markets block investment in renewables and energy efficiency because they promote investment in sources with the “lowest up-front price” rather than the “lowest price over the lifetime of a product” or environment costs.
But governments can regulate, invest in renewables and make decisions based on long-term goals. They can factor in broader social and environmental costs and fix the price of essential services.