Is there an energy glut in Australia?

The Australian Energy Market Operator (AEMO) recently released a report summarising the supply and demand of the energy sector, and how this will impact electricity prices in the country.

It found that Australia is producing so much energy at present that no additional coal-fired power stations will be required in the southeastern parts of the country.

AEMO modelled three different scenarios in its report and found there is such an oversupply at present that even in the worst-case scenario, there will be enough to go around, without losing reliability.

In the next 12 months, the country will produce 8,900 megawatts more than what is needed. This amount is around four times the power produced in a year by the country's largest coal-fired power station, according to an article published on August 9 on ABC news.

Why is there an oversupply of power in Australia?

There has been a downturn in electricity use in the past four years, as many Australians attempt to lower their bills in the wake of rising electricity prices. This slide in demand is expected to continue in future, too. 

More Aussies are installing rooftop solar systems in order to take a load off their electricity prices. In fact, the AEMO report details that electricity generated by solar systems has risen by 23.6 per cent in 2013-14 alone, reducing electricity consumed from the grid by 2.9 per cent. 

Not to mention that many households are switching to energy-efficient appliances in order to combat rising prices. 

On top of that, a large number of manufacturing industries are lowering their energy use, and there has also been a downturn in many of these industries. Some of the aluminium smelters in New South Wales and Victoria have closed and there is already a planned shutdown of the car production in the entire country.

The report details that no new baseload coal or gas-fired power stations will be needed for the next 10 years, at least.

What does this mean for electricity prices?

In the wake of these changes, there may be a drop in profits for electricity suppliers, principal consultant of energy strategies with Pitt and Sherry Hugh Sadler told ABC news on August 9.

"Many of them will have to trade unprofitably as many of them already have been doing for the last year or two," he said. 

This may lead to some sources closing their doors. For instance, energy company HRL announced the closure of a small coal-fired power station in La Trobe Valley.

However, despite an oversupply, it seems Australians will continue to pay more for their electricity.

This is because the price increases are due to the 'poles and wires'. This means they are the result of  the cost of taking electricity from the power station through to the consumer.

Does this affect the RET discussions?

The Government is currently reviewing the Renewable Energy Target (RET) and there has been pressure from both sides of the argument. Renewables supporters feel there should be a strong focus on having more renewable energy sources by 2020, reducing the country's carbon footprint. On the other hand, the current industry claims that renewables are having an impact on their bottom line and the RET should be reduced.

Currently, there are millions of dollars worth of renewable energy projects on hold, as their developers are waiting to see the outcome of the RET review before proceeding.

Mr Sadler told ABC that without the RET there is no future in large-scale renewable energy projects.

If consumers wish to reduce their energy prices, they can compare electricity and ensure they are with the best supplier for their needs. Rooftop solar options are also another solution to keep prices low.

Posted by Liam Tunney.