Fuel Poverty and the 2022 Energy Crisis

• Published date: 01 December 2022
• Author: Paul Simshauser
• Date: 01 December 2022
• DOI: http://doi.org/10.1111/1467-8462.12492

The Australian Economic Review, vol. 55, no. 4, pp. 503–514 DOI: 10.1111/1467-8462.12492

Fuel Poverty and the 2022 Energy Crisis

Paul Simshauser*

Abstract

The Ukraine war has increased coal and gas

prices during 2022. Consequently, spot prices

in Australia's National Electricity Market rose

from $75 to $225/MWh, year‐on‐year.

Households are shielded from spot prices,

but as energy retailer hedge contracts mature,

they are replaced by higher cost contracts,

and end‐use retail tariffs will then rise. In this

article, fuel poverty levels in Queensland are

analysed. Model results forecast that fuel

poverty rises from 6.8 per cent to 10.5 per

cent of households. However, changes to

energy concessions policy in 2016‒2017

materially enhanced horizontal and vertical

eff‌iciency, with successful targeting rising

from 51 per cent to 69 per cent of vulnerable

households.

JEL CLASSIFICATION

D4; L5; L9; Q4

1. Introduction

During 2022, Australia's National Electricity

Market (NEM) experienced its most turbulent

year on record. The underlying source of

wholesale electricity market volatility was the

sharply rising costs of fuels—coal and gas

have reached record prices in international

markets due to the war in Ukraine.

The NEM's marginal coal‐and gas‐f‌ired

producers are exposed to export prices to

varying degrees. For context, coal has traded

from an historic average of ~$80/t up to

$500+/t at the time of writing. Natural gas has

similarly surged from historic averages of ~

$8/GJ to $40/GJ, before moderating back to ~

$15–20/GJ. Compounding matters, an unu-

sually large number of coal‐f‌ired generators

experienced unplanned outages during 2022.

Wholesale electricity prices have thus

increased from $75/MWh in 2021 to $225/

MWh in 2022 (at the time of writing) and the

electricity forward curve remains elevated for

at least 3 years ahead. The numbers are hard

to reconcile relative to the NEM's 23‐year

historic average price of ~$60 (real 2022$).

Most Australian households and businesses

are presently shielded from the worst effects

of these very sharp increases in spot electricity

prices. Residential electricity tariff caps are in

place for customers, which accounts for the

fact that the prudent energy retailer invariably

holds a portfolio of forward contracts written

in prior periods, pre‐dating the current energy

market turmoil. But as forward contracts

mature, energy retailers must replace them.

At this point, the electricity tariff caps will be

increased by regulatory authorities, and the

worst effects of the energy crisis will slowly

*Correspondence Centre for Applied Energy

Economics & Policy Research, Griff‌ith University, QLD

4111, Australia.

Email: p.simshauser@griff‌ith.edu.au

© 2022 The Authors. The Australian Economic Review publishedby John Wiley & Sons Australia, Ltd on behalf of The University of

Melbourne, MelbourneInstitute: Applied Economic & Social Research, Faculty of Businessand Economics.

This is an open access article underthe terms of the Creative Commons Attribution License, which permits use, distributionand

reproduction in any medium,provided the original work is properly cited.