Yahoo Finance Up by 285%: Here’s how bad the energy crisis could get
If small retailers can’t weather soaring wholesale energy prices, Australia could face a less competitive energy market and higher prices in the future.
High global energy prices - caused by the Russia-Ukraine conflict, unexpected electricity outages and a cold snap - have pushed several smaller retailers to the brink.
Joel Gibson from One Big Switch was concerned these smaller retailers wouldn’t be able to weather the storm, resulting in less competition in the market.
Also read: Energy providers tell customers to switch to cheaper competitors ‘ASAP’
Also read: $227 more a year: ‘Window of opportunity’ to avoid looming energy bill shock
Also read: Energy bills to soar by $100: Here are some easy ways to save
So far, only one commercial gas provider has actually gone out of business.
However, half a dozen retailers have warned their customers about increasing rates, with one small retailer upping its prices by 285 per cent.
Four of those companies advised their customers to go elsewhere, Gibson said, with two “shutting up shop” to new customers.
Gibson said there was a real risk these retailers would go bankrupt under these conditions.
“With fewer retailers, there’s less competition, and competition is good for consumers,” he said.
“It puts downward pressure on markets and keeps the big guys honest.”
He said ReAmped Energy - one of the retailers advising its customers to take their business elsewhere - had consistently been the cheapest retailer in four states over the past few years.
“So that’s a real loss for customers.”
Gibson said larger retailers were likely to be more resilient to price hikes because they owned their own power stations.
“Because part of their business is currently making money off these soaring prices for black coal and gas, they might be able to cross-subsidise their retail business to some extent and pass on lower price rises to customers,” Gibson said.
“That’s the hope.”
Even the big retailers are likely to up their prices due to the volatility in the market, with Gibson estimating around a 15-20 per cent increase.
How expensive will energy get?
Roberto Aguilera, an energy economist at Curtin University, said rising energy use, due to cold weather, combined with coal-production outages, were exerting strong upward price pressure.
“Gas could normally fill in for coal, but it’s in short supply as much of it is contracted for export to Asia,” Aguilera said.
“Some of those countries also are experiencing shortages and elevated prices on account of supply disruptions from Russia – gas markets around the world are interconnected, so when supply declines in one region, prices tend to rise everywhere.”
However, Aguilera said there could be price relief on the horizon.
“As the weather improves in the eastern states and the northern hemisphere, and as the global economy continues to slow, gas consumption should decline,” he said.
He also said new gas projects were expected to come online in most of the producing regions, helping to bolster supply.
“And, although Russian supply has slowed, it’s unlikely to decline in a significant way – Europe has no real substitute, while Russia depends on the export revenue,” he said.
He said the combination of all those factors should help bring prices down later in the year.
What should energy customers do in the meantime?
Gibson advised energy customers to shop around if their retailer had hiked prices.
He also recommended snagging one of the few remaining competitive fixed rates “because they’re disappearing by the day”.
People could still save on variable rates but he said they would need to keep switching to dodge the worst of the hikes.
“If you're not prepared to shop around and switch, we've seen already that some people would be getting increases over $1,500 annually for a typical household if they don't move.”
Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to the free Fully Briefed daily newsletter.
