The often excellent Judith Sloan writes in 'The Australian' on...

The often excellent Judith Sloan writes in 'The Australian' on Wednesday 3 January 2022:

Why a coal price cap was determined as necessary is anyone’s guess. While coal continues to supply most of the electricity on the east coast, it is rarely the price setter. It’s also unclear how many plants were paying more than the cap, with many plants having their own coalmines and with that coal not available for export.

What seems to have driven the policy is the small number of contracts signed by coal plants that referenced international coal prices and the owners of these plants being keen to break these contracts. Given the imprimatur of government legislation and compensation paid to the providers of coal making up the difference between the price cap and the international price, a deal was sealed. There is little doubt that this aspect of the policy will turn out to be very bad deal indeed.

The only rational explanation for a coal price cap was the avoidance of a marked shift to the use of gas to generate electricity. The worry may have been that a gas price cap without a coal price cap would have disproportionately swung the economics to gas production. This could prove problematic in the context of the relative shortage of gas on the east coast plus constraints on its movement.

Of course, this illustrates what a dense thicket is quickly created once a decision is taken to impose price caps. And there are just so many complications that the bureaucrats in Canberra have no knowledge of, including different types of coal, different contractual arrangements of the various plants, transport considerations – the list goes on.