Australian taxpayers will be footing a bill of up to $450 million (US$300 million) to compensate for the potential losses incurred by a power station due to the Labor government’s energy price relief policy.
Mining giant Rio Tinto, the major shareholder of the Gladstone Power Station, will receive the lump sum to offset the impact of the 12-month coal price cap imposed under the federal government policy in 2023.
Gladstone Power Station is one of the only two wholly private generators selling electricity to the grid in Queensland.
Queensland and Federal Governments to Share the Bill
As the compensation plan is being carried out, the Queensland and federal governments have agreed to split the bill 50-50.“The Commonwealth and Queensland governments will share 50-50 the costs of the rebate to the Gladstone Power Station to be based on actual costs,” a government spokesperson said in comments obtained by AAP.
“As part of this partnership on energy security, the Commonwealth will work with the Queensland government on a package of commitments to support the clean energy transition.”
The deal is still under negotiation between the state and federal governments and Rio Tinto, so the final compensation amount is still subject to change, but officials expect the actual bill to be lower when Callide Power Station recovers its full capacity.
This comes as the federal government is negotiating coal price caps with Queensland and New South Wales (NSW) as part of a plan to slash household and business electricity bills by intervening in the energy market.
Unlike NSW, the Queensland government doesn’t need to pass laws to implement price caps as it owns nearly all of the power stations in the state.
Labor’s Energy Price Relief Plan
In early December, the Labor government introduced a new policy to tackle soaring domestic energy prices after the 2022-2023 federal budget predicted that electricity prices would jump by 56 percent in the next two years.Under the plan, the government will impose price caps on gas and coal used for power generation and provide bill relief for households and businesses.
Specifically, the plan will cap wholesale gas prices produced by east coast gas companies at $12 per gigajoule for 12 months, while the ceiling for coal prices will be set at $125 a tonne.
It will also put aside up to $1.5 billion to provide hundreds of dollars worth of electricity bill relief to welfare recipients and small businesses, with co-funding from state governments.
The government expected that the plan will help average Australian households save $230 on energy bills in 2023 while reducing the impact of the forecast electricity price increases in 2023-24 by 13 percent points.
Pushback from Energy Industry
The legislation received strong pushback from Australia’s energy sector, which criticised the government for its “heavy-handed” energy market intervention.They also warned that the government’s new policy would hurt domestic energy supplies on the country’s east coast.
The passage of the legislation has forced many oil and gas companies to revise their business strategies, with Senex Energy being the latest to announce the changes.
The company cited the new mandatory code of conduct for the wholesale gas market as the main reason for the suspension.
The Australian Petroleum Production and Exploration Association (APPEA) said Senex Energy’s decision showed that the government’s “radical” move risked jeopardising future investments in the sector.
“This decision by Senex Energy is exactly what the industry warned of when the government decided to take unprecedented, permanent control of the gas market and regulate the rate of return for these investments.”
Meanwhile, in his response to criticism over the new coal and gas price caps, Energy Minister Chris Bowen said he did not accept that the gas industry made “mega profits” off the war in Ukraine.
“We would have seen Australian industries fold next year in the absence of government response. Now we’re not going to let that happen.”
