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El Niño to Disrupt Energy Prices Summer 2023-24. What Businesses Need to Know Now!

Australia on Alert

A potential game-changer for the Australian energy market is on the horizon. Forecasts warn of a high likelihood of El Niño occurring in the summer of 2023-24, bringing with it unprecedented challenges to the nation's energy grid. El Nino conditions are likely to drive demand for more electricity in an already high-priced market.

Energy bills could reach boiling point with the predicted demand for more energy use, while electricity generators could become less efficient, resulting in less energy delivered to the system. Rising temperatures also lower the capacity of transmission lines to transport energy. The hotter transmission lines get, the less electrical current can be carried safely.

What is El Nino? How likely is it this summer?

El Nino dry conditions impact electricity prices
El Nino conditions to impact electricity prices

“Our atmosphere is warmer due to climate change and so hot, dry conditions that are associated with El Niño are exacerbated.”Dr Jaci Brown, Climate Intelligence Director, CSIRO

El Nino is a periodic weather pattern typically observed every two to seven years, where a warming of sea waters in the Pacific Ocean disrupts the climate, increasing heat waves particularly in the southern hemisphere. El Niño can affect the global weather, economies, and ecosystems – they often last for nine to 12 months, but they have also been known to last for multiple years.

International forecasts now predict a moderate-to-high strength El Niño event with high confidence. Alongside climate change, this El Niño could break warm weather records throughout the summer of 2023 - 24. This month the Bureau of Meteorology alerted the likelihood of an El Nino event, increasing to 70 per cent.

The pressure on power and prices

An increase in temperatures and heat waves raises the prospect of a stressed electricity grid. A stressed grid can lead to “load shedding” or blackouts – when power companies deliberately switch off the power supply to partial populations to prevent the system from becoming dangerously unstable. This happened in Victoria in 2019, when more than 200,000 customers lost power during extreme heat.

The electricity grid is also vulnerable to hydroelectricity generator outputs during reduced rainfall periods,, as was the case in Tasmania in 2016. These generators produce electricity by pumping water through turbines. Water scarcity sparked an energy crisis in the state.

The Australian Energy Market Operator (AEMO) earlier this year warned that electricity demand may exceed supply due to weather conditions and outages. It referred to delays to the Snowy 2.0 hydro project and gas-fired Kurri Kurri power station in New South Wales. System pressures are also affected by the compromised capacity of Queensland’s Callide C coal-fired power station, impacted by an explosion at the site.

What steps can be taken to reduce risk?

Entering electricity fixed-price contracts
Hedging contracts protect against the risk of climate crisis and price fluctuations and can reduce bill shock. As fluctuating energy prices are already hurting Australian businesses, a negotiated fixed rate through a reliable broker could provide price stability and peace of mind.

Monitoring regulatory changes
Staying informed about regulatory developments related to energy pricing is helpful, as they can impact the effectiveness of hedging strategies. Regulatory changes might affect energy prices, market structure, or contract terms.

Switching to solar
The shift to solar is often a smart way to protect operational budgets from energy volatility. In many cases, by installing a solar system on a commercial building, businesses immediately see a reduction in their electricity bill. Over time solar systems can pay for themselves through these savings. In some cases, commercial solar solutions can be cash-flow neutral or positive from day one.

Next steps

For over a decade Choice Energy has future-proofed Australian businesses against energy price threats and reduced their carbon footprint through our energy brokering and solar services. To connect for an obligation free consultation on energy and cost reduction strategies click below.

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- Bundled vs. unbundled energy bills - Which one will lead to more savings?

- Tackling Business Energy Costs this Financial Year - 5 takeaways from recent webinar

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