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Report

Cost of inaction: addendum 1

19 Oct 2018
Description

One of the predominant issues to persistently make headlines in Australian society in recent times has been the rising price of residential electricity and the equally volatile gas market whose wholesale prices have led to unprecedented rises in electricity for the average Australian. A lack of a comprehensive domestic gas reservation policy and definitive action to curb gas prices, has meant that households today are paying an extremely high price for their power needs.

In February 2018, the McKell Institute released The Cost of Inaction, which estimated the impact of wholesale gas prices on average household electricity bills in Queensland, New South Wales and Victoria. The findings indicated that households would be paying substantially more for electricity than they would be, if wholesale gas prices were commensurate with prices advised by the ACCC netback range at the time. The netback price is the cost of gas at the wellhead for gas supplied to LNG facilities and is worked out by deducting gas shipping (sea freight) costs, liquefaction costs and pipeline transportation costs from delivered LNG export prices. The ACCC’s Gas Inquiry throughout 2018 has not released specific estimates on the Netback price - a critical figure specifying the upper bound that domestic wholesale gas prices should reach. This lack of critical information has left domestic gas consumers unclear about whether the offers they are receiving on new contracts represent fair value.

This report seeks to serve as an addendum to the previous report and highlights the rising price of wholesale gas and its impact on electricity in New South Wales, Victoria, Queensland, South Australia and Tasmania. It will also illustrate how the average gas bill has varied in each state in the recent past.

Since the beginning of the year, domestic and international gas markets have both been subject to considerable change, and the outlook has become steadily unclear as political turbulence continues to override opportunities for bipartisan solutions. The political failure of the Government’s proposed National Energy Guarantee (NEG) is just one recent example of the uncertainty facing Australia’s energy market.

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2018
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