Regulated power prices set to surge ‘at least 20 per cent’ this winter as energy bill reprieve ends

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Benchmark power prices for hundreds of thousands of Australians are set to rise by more than 20 per cent within months as the enormous costs from last year’s energy crisis flow through to consumers’ bills.

Following increases of up to 18.3 per cent last year, electricity price caps in a number of states are expected to jump by an even greater amount under changes set to come into effect from July.

The Australian Energy Regulator will soon hand down a draft decision setting out increases to so-called default market offers (DMOs), which are the maximum prices retailers can charge customers on standing arrangements.

It is understood the draft decision will propose increases of at least 20 per cent.

Households and small businesses in south-east Queensland, New South Wales, and South Australia will be covered by the determination.

Those in Victoria and Tasmania are subject to separate processes, while customers in Western Australia and the Northern Territory are part of separate markets.

Price hikes to apply ‘real pressure’

The anticipated hike to the benchmark price — which is an important reference used by electricity retailers to set other tariffs — comes after unprecedented turmoil in energy markets last year.

Wholesale power prices soared to record levels in 2022 as Russia’s invasion of Ukraine collided with surging global demand for fossil fuels, a spate of outages at Australian coal plants, and a cold winter.

Similar upheaval in the gas market prompted the federal government — backed by the states — to impose temporary caps on wholesale coal and gas prices in December, along with requirements for suppliers to meet “reasonable pricing” provisions in future.

Energy Consumers Australia’s chief executive officer, Lynne Gallagher, said the government’s intervention would reduce the rate by which electricity prices would otherwise have to rise.

However, Ms Gallagher said that was likely to be small comfort for households on low or below-average incomes.

For these customers, she noted, power bills could make up anywhere between 3 and more than 12 per cent of their disposal incomes — compared with 1 or 2 per cent for wealthier households.

Combined with the super-sized increases of last year, Ms Gallagher said power price hikes of greater than 20 per cent would push many people closer to the edge.

“For people above median household income, that kind of increase, while it does create bill shock, is not unaffordable,” Ms Gallagher said.

“A 30–40 per cent increase over two years is a bit jarring but … it’s not going to take food off the table [for those households].

“But for everybody below median household income, which is around $92,000 nationally, it’s a real pressure.”

Consumers urged to shop around

St Vincent de Paul executive Gavin Dufty said any increase in the default offer would directly affect relatively few people because most customers were on competitive rates.

He urged people to always shop around for a better deal, saying the savings over a year could amount to hundreds of dollars compared with the default price.

Nevertheless, Mr Dufty said the DMO was a critical marker for the broader market and other offers would track its rise.

“It signals to consumers that market rates are likely to increase, if they haven’t already,” Mr Dufty said.

“St Vincent de Paul Society did observe a 14 to 20 per cent annual increase in the Victorian electricity market offer we track.”

According to Ms Gallagher, the looming price pain was in many ways a delayed reaction to last year’s crisis, in which the wholesale market soared to a level about six times higher than normal.

While noting spot prices in the national electricity market had since fallen by more than half, she warned they were likely to stay at historically elevated levels.

“It’s good to know it’s not as bad as it could’ve been,” she said.

“But for the long term, really, we’re not going to have electricity prices coming back to their previous levels.

“This high level is going to come off, but they’re still going to be high.”

Grattan Institute energy program director Tony Wood echoed the comments, though he said the upward pressure on prices had definitely eased.

Transition to be a ‘rollercoaster’

Mr Wood said in the same way that crises had many causes, big declines in prices were driven by multiple factors.

In this case, he said those included major falls in international energy markets, improved reliability at coal plants, increased output from renewable energy sources and — crucially — a mild summer.

Mr Wood also said the Commonwealth could afford to claim some of the credit for the turnaround, saying the gas and coal price caps had had a material effect.

Despite this, Mr Wood said Australia’s energy system — and therefore the consumers who relied on it — was in for a “rollercoaster” ride as the country entered the pointy end of the transition away from fossil fuels.

“What we’re doing is taking an electricity system, which is a bit over 100 years old, and completely turning it on its head physically,” Mr Wood said.

“We’re taking a gas system, which is more than 150 years old, and we’re going to shut it down within 30 years, basically.

“That’s huge change.

“Anyone who thinks this is going to be a walk in the park … is kidding themselves and everyone else.

“But, equally, it doesn’t mean you don’t do it.

“It means you’ve got to do it with your eyes very much open in terms of how we manage the risks.”

Australia ‘falling behind’ new build

Mr Wood said the big challenge for Australia over the coming years would be ensuring there was enough new generation capacity to replace the retiring plants, which were mostly fired by coal.

Critically, he said there needed to be enough “firm” capacity such as batteries, pumped hydro or gas plants to keep the lights on when the sun wasn’t shining or the wind wasn’t blowing.

To that end, Mr Wood said he was concerned Australia was falling behind, pointing to the delays and troubles that have plagued the federal government’s own $6 billion pumped hydro project — Snowy 2.0.

Originally slated for completion in 2021, the time frame for Snowy 2.0 has repeatedly blown out and it is now due to be finished at the end of 2027.

Amid the delays, Mr Wood noted Australia’s single-biggest power station — the 2880MW coal-fired facility at Eraring in NSW – was scheduled to be closed in 2025.

“We’re not doing a particularly great job of building the infrastructure for a low-emissions future,” Mr Wood said.

“We keep trying to kid ourselves that solar and wind with a few batteries will be enough, and it won’t be.

“Long-term large storage is quite a challenge, as the people who are still trying to building Snowy Hydro are finding.

“And that’s only one of what we’re going to need a lot more of.”

Mild summer likely a short reprieve

Despite the challenges, consumer advocate Ms Gallagher said households could be forgiven for turning their minds to things other than the difficulties of the energy transition.

She said 2022 was a watershed and traumatic year for many energy users, and most would be grateful for the seeming reprieve over the summer.

“The last year has been so full of shock — bill shock, outage shock — even if there’d been a discussion about, ‘What if it hadn’t been a mild summer?’, I think people would have tuned out anyway,” Ms Gallagher said.

“There’s only so much people can absorb.

“So then it’s really about whether the people paid to worry about this … are they focusing on it?

“And the answer is, yes.

“They don’t have a false sense of security at all.”

By energy reporter Daniel Mercer (Original ABC Article)