Australians should not worry about electricity price rises for many years because of oversupply, says the boss at the nation’s largest utility group Origin Energy.
Falling demand, lower poles and wires charges, the end of the carbon tax and supply increases to meet the 2020 renewable energy target were contributing to the situation.
“The consumer level outlook is as benign as it has been for many years and it is probably quite a good outlook for consumers,” Origin Energy chief executive Grant King said during an investor day.
“We see the system’s persistent and chronic oversupply being a long term feature of this market.”
He insisted that was not bad news for Origin, because it was “under-generating”, or producing less electricity, in its role as a wholesale electricity producer as well as a retailer.
That allows it to buy electricity at a cheaper price rather than produce it itself.
Origin also announced plans on Wednesday to cut $150 million in costs out of its energy business by June next year as it seeks to defend its position as the number one utility company.
That includes $100 million in natural gas and electricity retail and generation costs and $50 million in capital expenditure.
It is targeting another $220 million in cost reductions and $95 million in capex cuts beyond that.
“There is still a lot of discounting activity in the market, particularly in Victoria where consumers are benefiting from a very competitive market so you have to keep your costs where they need to be,” Mr King said.
The outlook for natural gas is better, with demand to triple and prices to rise to offset the risk of weaker electricity prices.
The suite of new liquefied natural gas export projects due to come online will send domestic prices higher, with Origin operating one of those, the APLNG in Queensland which is due to double its revenue.
Gas prices are affected by a falling oil price and consumers will benefit somewhat, but the current $US60 a barrel oil price is likely to mean domestic gas oil rise from $3-4 a gigajoule to $8, Mr King said.
He also said that current investments in renewable energy including solar rooftop and hydro put Australia on track to easily exceed the Renewable Energy Target of 20 per cent of demand, with 30 per cent possible.
Origin’s shares closed nine cents up at $12.65.