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Export coal: our power gift to Asia
Natasha Bita and Annabel Hepworth From:The Australian November 05,
2010 12:00AM
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SOUTH Korea and Taiwan are managing to produce cheaper power than
Australia, even though they have to ship the Australian coal that
fires their furnaces.

In self-sufficient Australia, households are paying one-third more for
electricity than those in Taiwan and South Korea - two of the biggest
buyers of Australian coal.

Residential power prices in Australia have surged 12.4 per cent in the
past year, four times the rate of inflation.

Australia is now paying more for power than some of the countries to
which it ships its coal, who also happen to be trade competitors.

Local households paid 14.3c for every kilowatt hour of residential
power, while Asian households paid 10.6c, based on the most recent
2008 data provided by the Australian Bureau of Agricultural and
Resource Economics.

Industrialists yesterday declared that Australia's surging power
prices could rob the manufacturing and mining sectors of their
competitive edge.


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Ray Horsburgh, a former chief executive of the Smorgon Steel Group who
now sits on several boards, including that of building materials
company CSR, warned of the dangers of rising electricity costs.

The risk was that, eventually, locally produced aluminium, steel and
other metals "just won't be competitive" with ingots or slab imported
from China.

"It's very important in any smelting industry in Australia, steel, any
of the metals that are smelted, power becomes a competitive factor,"
Mr Horsburgh said.

"They are not high-labour content plants, these smelters, so labour is
not such an important cost component; power becomes the most important
cost."

Asciano chairman Malcolm Broomhead, who is a BHP Billiton board
member, predicted that power prices would soar as Australia put a
price on carbon.

"That's the price of clean energy," he said yesterday.

"The days of cheap power are behind us. That's going to be an issue
for the community generally to come to grips with."

While Australian households paid relatively more for their electricity
than their Asian counterparts, industrial customers paid similar
amounts for power: 8.4c in Australia, 7c in Korea and 8.2c in Taiwan.

But in Japan, the biggest buyer of Australian coal, industrial power
prices were double Australia's at 14.3c, with households paying 21c.

Industry analyst Ben Freund, the chief executive of energy price
comparison website GoSwitch, said of Japan: "They have to import the
fuel and transport it from Australia. They are ultimately paying a lot
more for their fuel than we are, but they don't impose artificial
costs on their consumers like we do.

"They look upon the power sector as meeting the needs of the economy
at a low price. But in Australia, the energy sector has become
something of a plaything for politicians."

The Energy Users Association of Australia yesterday claimed power
prices were on track to double within five years and triple within a
decade as utilities spent billions of dollars on infrastructure, and
the federal government forced them to source one-fifth of their
supplies from renewable energy by 2020.

EUAA executive director Roman Domanski said: "Low power prices have
been a real bonus for the Australian economy and community, but that
is rapidly starting to change.

"Power prices are fast getting out of control and we will find
ourselves losing competitiveness - a number of companies could close
down and move offshore."

Mr Freund said Australia had not built any new coal-fired power
stations for two decades, despite surging demand from a growing
population fond of power-hungry air-conditioning, clothes dryers and
flat-screen TVs.

"Demand for power has been increasing exponentially but we haven't
built any of those coal-fired power stations to support the grid," Mr
Freund said.

"If demand is increasing, we should just be producing more of it;
supply should meet demand as it does for any other commodity and we
shouldn't be seeing these sorts of skyrocketing prices."

The federal government's Australian Energy Regulator, which regulates
the nation's wholesale electricity market, warned this week that
consumers faced blackouts unless they paid more for power.

AER chairman Andrew Reeves said yesterday he could not comment on the
lower power prices in South Korea and Taiwan as he was not familiar
with their industry structures.

But in an interview with The Australian, he likened Australia's
electricity transmission network to a run-down car.

He said electricity infrastructure built in the 1960s and 70s required
costly upgrades to cope with the surge in demand.

"The big drivers (of higher bills) are replacing infrastructure built
in the 1960s and 70s and the need to expand the network, because
customers are using more air-conditioners and bigger appliances," he
said.

"The network hasn't been designed to cope with it.

"And all the (electricity) businesses are at that phase in the
business cycle where they need substantial reinvestment.

"It's a bit like your car - once it gets to 15 years old you've really
got to replace it."

Cheap coal provides three-quarters of Australia's power supplies,
although renewable energy from solar and wind power has been growing
at a rate of 10 per cent a year over the past decade.

Half of South Korea's power comes from coal.

Coal is Australia's largest commodity export, supplying 18 per cent of
the thermal coal trade and earning $55 billion in 2008-09.

Most is destined for power plants in Japan, South Korea and Taiwan for
electricity generation.

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