Australia’s Energy Crisis: What You Need to Know

Why is Australia in an energy crisis? 

An energy crisis happens when the demand for energy is greater than the supply (known as shortfall). This can then lead to interruptions in supply and increased costs for everybody. How Australia ended up in an energy crisis is the result of a perfect storm of factors, including:   

The war in Ukraine. Because of the ongoing war, many governments around the world have stopped trading with Russia. It’s been estimated that this one factor was responsible for 90% of electricity price rises across the world in 2022,¹The Hon Chris Bowen MP, Minister for Climate Change and Energy – Joint media release: Default Market Offer confirms Government action working to shield from the worst of global energy price crisis with prices remaining high in many locations even years after the initial invasion. This is because, until now, Russia has been a major player in the world’s energy markets. Prior to invading Ukraine, it was one of the top exporters of liquid natural gas (LNG) but their LNG exports more than halved in 2022.²Department of Industry, Science and Resources – Resources and Energy Quarterly: June 2023, p78 Removing Russian gas from the world energy equation unfortunately means that access to this natural resource just got pricier.  

A lot of Australia’s gas is being exported. Australia is actually one of the top exporters of LNG in the world.³Department of Industry, Science and Resources – Resources and Energy Quarterly: June 2024, p67 However, there’s concerns that maybe we need to hang onto a little more of what we have. Looking ahead to winter 2025, and even through to 2027, there’s chatter that the east coast might not have the LNG it will need. Southern states, for instance, will likely have to turn to Queensland for help staying warm in the peak winter months. But Queensland has their own problems in sourcing a new supply of LNG by 2029. To help manage the risk of a shortfall, Eraring coal power station will be kept open into 2027, but it’s only a stopgap solution. If gas gets scarce, we might see prices rising once again when they’ve only just started to drop. 

Some of our coal power plants are getting old. Just like we start to find things get a little harder as we age, our aging coal power plants are becoming less reliable. This means possibly more unexpected power outages. Unfortunately, despite maintenance and investments, this issue is expected to only get worse. Plus some coal power plants are being prepared to be closed altogether over the next decade, if not before, so maintenance may not be the highest priority. Put it all together and you find an increase demand for gas-generated electricity that drives prices right up.  

Why are energy prices so high right now? 

All these factors mean that Energy Retailers are having to pay a higher wholesale price for electricity. In the first quarter of 2022 — with the energy crisis well underway — wholesale electricity prices increased by 141% compared to the same time in 2021.⁴Australian Energy Market Operator – Electricity prices driven by outages and higher generation costs in volatile March quarter But, as the industry adapts, we’ve seen those wholesale prices drop — it just hasn’t translated to the consumer side of things. This problem is due in part to network costs and those aging coal power plants. 

In an attempt to help make up the difference, there’s the Australian Government’s Energy Bill Relief Fund. This is a $300 rebate for households to help take some of the sting out of their electricity bills. Queenslanders also have the Cost of Living rebate, delivering a further $1,000 off their bills.  

Of course, these measures can’t entirely turn things around and we’ll all have to continue to weather this storm as best we can. If you haven’t already, there are some tips you can follow that may help you save on your electricity bill, as well as get into some good energy-efficient habits.  

How much higher will energy prices rise? 

If you lie awake at night worrying about your power bill, you’re not alone. In a May 2024 survey of 1,000 Aussies, we learned that 26% felt they were not coping at all with higher bills or were only just scraping by.⁵iSelect commissioned i-Link Research to conduct a national online survey between 8 May and 16 May 2024. The sample is n=1,000 Australians 18+ years, with data weighted to represent the population by age, state and gender, and is representative of all Australian adults 18+. But is there light at the end of the tunnel? 

We don’t know what will happen tomorrow, but we can use certain benchmarks to make a guess. In the case of electricity prices, we can look at regulated prices, like the Default Market Offer (DMO) and the Victorian Default Offer (VDO), to provide a little more clarity. FYI: these are the maximum prices Energy Retailers can charge their customers for standing offers.  

Comparing the 2022–23 DMO to the 2024–25 version, there’s a 16.95% to 26.67% increase which could mean an additional $298 to $471 on your annual bills. This depends on where you live and what tariffs are on your plan.  

If you live in Victoria, it’s the VDO you want to pay attention to. Set by the Essential Services Commission (ESC), the 2024–25 VDO has about a 17.98% price increase for Victorian residential customers compared to the 2022–23 VDO. This equates to an average annual increase of $252.40.  

Both the DMO and VDO seem to suggest electricity prices haven’t quite finished their upward trajectory. However, remember that the DMO and VDO only apply to standing offer contracts. You may find a market offer contract that comes well under the benchmark. In fact, where the DMO or VDO applies, retailers need to include a comparison percentage on their market offers to make it easy to see how various offers measure up. So, even if you aren’t currently on a standing offer contract, the DMO or VDO may give you an idea of what to expect across your electricity bills. Alternatively, they might tell you that it’s time to find a new Electricity Plan. 

Is the energy crisis just happening in Australia? 

No, this is a global issue that’s being felt around the world to varying extents by different countries. How countries are affected and to what extent can depend on their policies and energy reserves, amongst other factors though. While it’s nice to know we aren’t alone, we’d love if the world could come together in a less stressful way! 

When will the energy crisis end? 

Unfortunately, the energy crisis didn’t come with an expiry date. But there are some positive developments that could mean the worst is behind us. For instance, did you know that worldwide renewable power capacity increased 50% in 2023 with more fast growth to come?⁶International Energy Agency – Massive expansion of renewable power opens door to achieving global tripling goal set at COP28 The global energy crisis has been a wake-up call for many countries about their energy security, and focusing on renewable alternatives is one way to handle this.  

Things get even better when you zoom in on Australia. Across the country, renewables accounted for 39.4% of the electricity generated throughout 2023, growing almost 7% in two years.⁷Clean Energy Council – Clean Energy Australia 2024, p9 There are also some Federal Government-led initiatives that may help see this number rise further too, including Powering Australia and Rewiring the Nation. So while the crisis may not be over just yet, there could be a rainbow at the end of this storm.