Why are electricity prices rising in July? How can I cut costs? Your energy questions answered

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Energy costs are set to rise, once again.

This time, it will be at the start of July, based on a decision by key regulators.

How much bills will increase by depends on where you live and which energy provider you’re with.

Here’s a breakdown of what’s happening, along with answers to some of your burning energy questions.

Wait, what’s happening in July?

The answer starts with the Australian Energy Regulator (AER) — the regulator of the wholesale electricity and gas markets in Australia.

This week, the regulator announced its default market offer for the next financial year, which impacts power prices in the states it covers.

It said electricity prices in some states would increase between 20 and 25 per cent from July 1.

That’s higher than its estimate from March, when it was between 20 and 22 per cent.

What’s a default market offer?

It’s the maximum price energy retailers can charge their customers who are on default contracts.

In states where there are multiple energy companies competing with each other to supply power to customers, they might offer a range of different contracts or plans for power prices.

This means there’s no one set price for electricity in these areas.

So one customer might pay X amount for power during a particular time of day and Y amount for another timeslot, while another customer might just pay the same price for power regardless of the time.

Customers will typically go on a company’s default plan unless they choose a different plan.

What’s the purpose of it?

It’s purpose is twofold, says the Grattan Institute’s deputy energy director Alison Reeve.

Firstly, it acts as a benchmark. 

“If you’re not getting extra bells and whistles from your electricity retailer, then this is what the regulator says is a reasonable price to pay for electricity,” Ms Reeve says.

The second reason: It offers a single point of reference, making it easier to compare between retailers.

“It’s there to make it easier for people to compare their plans,” Ms Reeve says.

Who will be affected?

Not every person’s bills will go by 20 to 25 per cent.

It is only customers who are on the default offer in these areas:

  • South Australia
  • New South Wales
  • South East Queensland

The AER’s decision will directly affect more than 600,000 customers across these places.

However, Victoria’s Essential Services Commission (ESC) will also lift prices by 25 per cent.

Around 400,000 Victorian households and 55,000 small business customers are on that state’s default offer, according to the ESC.

As for the remaining states and territories, we don’t have the estimates for them yet.

This is because they’re set by different bodies, so their figures will be made clearer in the coming months.

Why is it different across states?

Ms Reeve says it boils down to one component that makes up part of your electricity bill: the cost of building and maintaining electricity poles and wires. 

“These costs are different depending on where you live,” Ms Reeve said.

For example, she says if you live in far western New South Wales, the wires are typically longer here, with not as many people using them.

“So the cost of delivering here may be higher compared to places like Sydney or central Brisbane.”

Are these price hikes linked to inflation?

Inflation was a substantial factor in the price increase, AER chairperson, Clare Savage told RN Breakfast.

“There’s an increase in the costs of building or recovering the cost of our transmission and distribution systems … and there’s also inflation that’s applied to the costs that retailers face,” she said.

“So there is a bit of inflation that flows through in this final decision today. And we have updated for the latest inflation data.”

An example of how linked the two are — Ms Reeve says to think about your local coffee shop.

“If their cost of electricity to run their coffee machine goes up by 20 per cent, then they need to raise their prices to cover this,” she said.

“The cost of almost everything in the country can be impacted in rising electricity costs.”

When will energy prices go down?

With inflation starting to ease, many are wondering whether energy prices will follow suit.

A volatile global energy market makes it difficult to predict where prices are headed in the next 12 months, Ms Savage said.

She said current forward contracts, which the regulator would take into account for the next default market offer period, are at a “similar price to where we are today”.

“It’s very early days, but we’re not seeing huge jumps in prices, even at the end of that cap,” she said.

She said the federal government’s intervention could also come to an end, but depends on international markets.

“I think if we see a stabilising in international fossil fuel prices that’s possible,” Ms Savage said.

Can the government do anything about this?

The federal government does not set the default market offer.

But some have said that consumers would be paying even more if it weren’t for the caps on gas and coal prices imposed by the federal government.

“The prices that we were seeing before the caps came in were a lot higher,” Ms Reeve said.

“And, in fact, those prices started to moderate as soon as the government started to talk about putting the cap in.

“So really from October of last year, when they made that announcement in the budget, we started to see the wholesale prices going down.

What can I do about rising energy prices?

  • Shop around: Depending on where you live, there may be different energy providers you can go with. Look for cheaper offers and be prepared to make the switch.
  • Talk to your energy retailer: Ms Reeve said they are required by law to help you if you are having trouble paying — this could mean helping you establish a payment plan or putting you on to a better deal.

Both Ms Reeve and Ms Savage encouraged people to shop around to ensure they were on the best offer possible by using the regulator’s website.

What can I do to save power?

Hot water systems: The government’s recommended setting for thermostats is:

  • 60 degrees Celsius for storage hot water systems
  • No more than 50C on continuous flow hot water systems

Air conditioners: The AER recommends keeping the temperature between:

  • 23C and 26C for cooling
  • Between 18C and 21C for heating

Washing machines:

  • Use a cold water cycle
  • If you must use hot water, keep it below 60C — a hot cycle can use up to 10 times more energy than a cold wash.

Use door snakes to block gaps in entry ways and apply weather seals to doors, windows, skirting boards, skylights and cornices.

And close the doors to rooms you’re not trying to cool (or heat).

These appliances suck your electricity and money in the background.

They enter a stand-by mode rather than fully powering down, meaning they continue to consume energy even while turned off.

So when you’re not using appliances such as washing machines, dishwashers, microwaves and even your TV, switch them off at the wall. 

Replace your showerhead with a four-star-rated, water-efficient option.

This will cut down on water heating costs because you’re using less water, and as a bonus, it will cut down on your water bills. The federal government estimates a saving of around $315 a year for a family of four.

Go with energy-efficient LED light bulbs, which use around 80 per cent less energy than older-style ones.

Make sure you’re turning off lights when you’re not in the room.

(Original ABC Article)