You’d better get ready for more expensive kilowatts soon. Electricity prices are going to “recouple” with soaring natural gas and coal prices. And here we thought cheap energy was a modern birthright.
Australia gets 80% of its electricity from coal. That’s because the country has a lot of it. But there are two reasons why your electric bill could be going up.
First, global coal prices are headed higher. Electricity producers – unless they own coal – will pay a higher market price for brown and black coal. Already in the States electric utilities are looking to hike rates as much as 29% thanks to the doubling in coal prices and the 50% gain in natural gas prices.
The second shoe to drop on your wallet could be an eventual carbon trading scheme in Australia. Utilities will pass the cost of producing carbon friendly electricity right on to the consumer. Electricity, like coal and gas, is due for a structural revaluation higher. Electricity may seem like magic, but everything comes from something, and for everything, there is a price to be paid.
For better or worse (and we’d argue it’s been for the better) the world has sunk 100 years of capital investment into an economy built on oil and energy. You can’t just switch to renewable or electric cars over night. And even if Toyota and Honda build millions of new fuel cell or hybrid cars that you can plug in and recharge, the juice has to come from somewhere.
Right now, that somewhere is coal. You can’t easily switch to a new fuel source any more than you can pour a new foundation for your house… while still living in the house. On the flip side, with rising coal prices… what a great time to be an investor in coal shares.
The Daily Reckoning Australia