ASX Wobbles on Coal as Tech Bounce Fades: What it Means for Aussie Property Pros
The Australian share market’s recent dip, linked to concerns around the energy sector, serves as a timely reminder of the intertwined relationship between energy policy, building costs, and the property market. The latest Default Market Offer (DMO) announcement from the Australian Energy Regulator (AER) underscores these connections, particularly for those in New South Wales, South Australia, and south-east Queensland where the DMO applies. Victoria operates under a separate regulatory framework.
Understanding the Default Market Offer (DMO)
The **DMO**, essentially a **benchmark price for electricity**, acts as a safety net for consumers who aren’t shopping around for better deals. It’s also the baseline retailers use to recoup their costs. With **benchmark tariffs set to rise by between 8.9% and 25.1%** in the DMO-affected states, the implications for the construction and property sectors are significant. Increased electricity costs directly impact building operating expenses and can influence property values, particularly for energy-intensive commercial buildings.
Drivers of Electricity Price Rises: A Deeper Dive
Johanna Bowyer, Lead Electricity Analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), points to several key factors driving these price increases.
* **Gas Prices:** Bowyer notes, “A key driver of wholesale price rises over the past decade is gas prices. Gas prices have come down from record levels seen a few years ago but still remain elevated compared to historical levels.” High gas prices translate directly into higher energy bills for businesses and households.
* **Coal-Fired Power Station Outages:** The reliability of Australia’s aging coal-fired power plants is also a factor. “Recently, a number of coal power station outages have also been driving up wholesale prices. Coal generators are ageing, and wear and tear on the assets can lead to more outages. When coal generators have outages, more expensive gas generation usually steps in to fill the gap, raising prices.” This presents a challenge for grid stability and further exacerbates price volatility.
* **Renewable Energy’s Influence:** While coal and gas prices continue to impact the wholesale market, Bowyer highlights the positive impact of renewable energy: “In our analysis of wholesale prices, we’ve found that higher penetrations of renewable energy are correlated with lower spot prices. Wind and solar farms bid into the market at very low prices, pushing wholesale prices down when wind and solar energy is abundant.” This suggests that a greater investment in renewable energy infrastructure could help to stabilise and potentially lower electricity prices.
IEEFA’s analysis suggests that expanding renewable energy generation would mitigate wholesale price spikes. However, the debate surrounding alternative energy sources rages on.
The Nuclear Energy Debate and its Impact on the Construction Industry
The discussion surrounding nuclear energy’s role in Australia’s energy future has significant implications for the construction industry. While the Coalition touts nuclear power as a viable solution , IEEFA raises concerns about its cost. “Nuclear is one of the most expensive electricity solutions. If nuclear power was introduced into the grid, we have calculated this could lead to energy bill rises of $665 per year for a typical household, or $972 for a 4-person household, in a situation in which nuclear reactors recover their costs through bills,” Bowyer argues.
The potential construction of nuclear power plants will generate massive economic implications and work opportunities for the construction industry; however, due to the complex nature of the construction, and high barriers of expertise for builders, the industry may face significant challenges when it comes to the construction of nuclear plants.
Cost-Saving Measures for Property Owners and Businesses
Given the upward pressure on energy prices, IEEFA recommends several strategies for households and businesses to reduce their energy consumption and costs:
* **Improved Insulation:** Better insulation in buildings reduces the need for heating and cooling, leading to significant energy savings. For property developers, this underscores the importance of investing in high-quality insulation materials and construction techniques, potentially adding value to properties.
* **Efficient Appliances:** Replacing old, inefficient appliances with energy-efficient models can substantially lower electricity consumption.
* **Rooftop Solar and Storage:** Investing in rooftop solar panels and battery storage systems allows property owners to generate their own electricity and reduce their reliance on the grid. Government incentives and rebates can make these investments more attractive.
Network Costs and Regulatory Reform
Bowyer also points to issues around network costs, which contribute significantly to household energy bills. “Regarding network costs, we have found that there are opportunities to bring them down. Network businesses are achieving supernormal profits, and tightening up the regulations could reduce bills by around $120 per year.” Reduced network fees can potentially lower costs for property owners and investors.
Implications for Property Professionals
The rising cost of electricity presents both challenges and opportunities for property professionals:
* **Increased Operating Costs:** Building owners and businesses will face higher operating costs, impacting profitability.
* **Demand for Energy-Efficient Buildings:** Tenants and buyers are increasingly prioritising energy efficiency when choosing properties.
* **Investment in Sustainable Technologies:** Developers and investors have an opportunity to capitalise on the demand for sustainable buildings by incorporating energy-efficient designs, materials, and technologies into their projects.
* **Opportunities for Retrofitting:** Existing buildings can be retrofitted with energy-efficient upgrades to improve their performance and reduce operating costs.
The Australian property and construction sectors must adapt to the changing energy landscape by embracing innovative technologies, advocating for sensible energy policies, and prioritising energy efficiency in all aspects of building design and operation.
Source: ABC News.
This article is based on a report from www.abc.net.au titled “ASX down on coal, after tech-led Wall St share rebound — as it happened”. You can find the original article here: https://www.abc.net.au/news/2025-03-13/asx-markets-business-news-live-updates/105045056
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