Australia’s energy prices have been falling for the last four years, but that’s about to change. Like the jump in petrol prices earlier this year, households will see a steep rise in electricity bills – up to 25% or more in some States.
We’ll break down why power prices are set to surge, plus share strategies to help insulate you from higher energy costs.Electricity bill shock straight ahead.
The wholesale electricity price makes up around 35% of a customer’s bill. Electricity retailers agree to buy energy ahead of time from generators to ensure supply to their customers. Right now, for electricity retailers signing contracts for the coming year, the forward wholesale price of electricity (for FY2023) has jumped;
- New South Wales is up 153% from a year ago
- Queensland is up 180% from a year ago
- South Australia is up 128% from a year ago
- Victoria is up 72% from a year ago
Wholesale prices in New South Wales and Queensland are now around 15 cents kWh. Add the network costs – about 8-10 cents kWh (depending on your network), plus 2.5 cents kWh for environmental levies and market costs, then GST – and the retailer is paying close to 30 cents per kWh. By the time it hits the average household’s power bill, prices are climbing towards 40 cents a kWh.
Recent price spikes in the spot market are even bigger. The fossil fuel generators are driving surge pricing for the extra energy needed at key times of the day to avoid blackouts.
Some experts are tipping a 40% increase in households’ power bills, with Queensland and New South Wales residents hit hardest.
So is this a temporary price shock or the new normal? Let’s explore why this is happening. And what you can do about it.
Local chaos
There is a storm of factors driving the power price increases. On one side, summer sees big demand peaks – like the heatwaves in Queensland. Add to that overall electricity demand is now increasing after shrinking during lockdowns. On the supply side, there have been constraints. Several coal-fired plants have struggled with outages creating risks of blackouts. So, the remaining gas and coal-fired power stations push up prices to ensure supply is met.
Global impacts
Then there’s the international situation. Strains in global supply chains quickly shifted petrol to new highs. Since March, the conflict in Ukraine and the associated sanctions on Russian energy exports have countries rushing to source alternative energy to power their economies. This is bidding up the value of coal and gas. So, local miners are now pricing their gas and coal at higher rates. As a result, electricity prices will increase because the costs of fossil fuels have jumped.
Not so bad in Victoria and SA
In Victoria, the power price surge isn’t nearly as bad. That’s because they mostly burn low-grade brown coal. Brown coal has no export market, so there’s not the same cost pressure on their coal. Fun fact: Grid constraints have effectively locked NSW and Queensland from getting hold of Victoria’s cheaper electricity.
While in South Australia, the higher renewable mix is paying dividends. After years of higher prices, SA won’t be hit quite so hard.
Gas is peaking too.
Gas prices are also up two-thirds from a year earlier. Prices approached record levels across all Australian markets, averaging $9.93 per gigajoule, compared with an average of $6.05/GJ in the March quarter of 2021. Record gas prices were set in Victoria, Brisbane and Adelaide, while Sydney posted its second-highest March quarter level.
You’ll hear from your electricity retailer soon.
Be ready to receive a price increase notice from your retailer. In the next two months, households in New South Wales and Queensland, Victoria and SA can expect to be informed by their electricity retailer about new price changes. The lower-cost electricity retailers will be forced to move first. They have been quick to pass on falling electricity prices over the last couple of years, but the tide has turned. Some larger retailers with generation assets or longer-term contracts may sustain their current pricing for a little longer. However, ultimately price increases will flow through. Come early July, expect that the market will have been reset. And the new Default Market Offer (aka reference price) in place from 1 July is likely to be adjusted upward to account for the surging wholesale costs.
What can you do to reduce electricity bill shock?
For at least 12 months and beyond, much higher grid power prices are something Aussie households will reluctantly need to accept. We’ve reset our expectation on petrol pricing, not getting back to $1.50 litre anytime soon. But there are some things you can do to minimise energy costs for your household. We’ll break out four strategies for reducing the impact of the price rises.
1. Shop for a fixed-rate electricity plan.
If you receive your new energy bill or notice of a price increase and feel you need to find something better right now, then consider the following;
For grid only households, we suggest you consider fixed-rate plans. Head here for a list of the cheapest fixed-rate electricity plans. Fixed-rate plans offer certainty on what you’ll be paying over the next year. You may pay a little more in the short term, but they offer peace of mind. Plus, they are likely to better market offers as prices rise. If the forward pricing continues to climb, retailers may need to make more changes to their variable pricing later in the year. Of course, if a fixed plan doesn’t work out how you expected, you can always switch out to another offer. The better fixed price deals won’t hang around for long, so don’t wait if you wan’t to be insulated from price increases over the next 12 months. (Editors note: At June 5 2022 – 26 electricity retailers have removed their market offers, including a number of the leading fixed plans – so there is less competition.)
If you have solar, fixed plans come with lower solar FITs. In QLD and NSW, feed-in tariffs will hold or even increase as daytime energy has now become a lot more valuable. For example, Globird recently introduced a 20 cent kWh FIT plan in NSW (Solar Plus). The new economics means this is now feasible, so we reckon more retailers will buck the falling FIT trend. So you may want to wait until early July to see where rates and FITs shake out.
You can find a list of retailers’ latest price changes here. This doesn’t mean that a retailer won’t make further changes down the tract. But suppose a retailer hasn’t made recent plan changes. In that case, you can reasonably expect it will happen soon!
2. Use energy when it’s cheaper
By making subtle shifts to when your household uses energy, you can access cheaper electricity and avoid expensive peak-time power. It’s an action called ‘load shifting’.
If you’re a grid only user, you could tap into solar sponge tariffs where they are available (Endeavour, Energex, Victoria and SA.) These offer cheap off-peak power during the day. You’ll want to run things like heating and cooling, laundry appliances and pool pumps during the cheaper off-peak time. The more you shift, the more you save. We unpack the strategy here, plus how to change tariffs if you are interested.
If you already have solar, try to use more of your own solar during the day by shifting. This is way cheaper than buying from the grid, even after not receiving a FIT.
Read more in WATTever’s Solar Owners Guide
3. Go solar. PV payback just got better
The payoff on solar improves as grid rates go up. Ultimately solar is not about the feed-in tariff. It’s about putting technology on your roof, which means an average household will reduce their need to buy grid power by at least half for two decades. The less you need to buy from the grid, the smaller the impact of future price rises. Now over three million Aussie households have greater energy independence thanks to solar. Solar is a proven money-saving exercise – even if you oversize your system. FITs are likely to trend up in the near term in NSW and QLD, so you might get a little more here.
So, if adding solar has been something you’ve been thinking about – this year it makes even more sense. Bigger winter bills will trigger another spike in solar installs as households seek relief.
4. Store and save. Battery economics level up
The experts picked that the tipping point for home batteries to go mainstream was when the price of the technology dropped. But battery prices have been stable while grid electricity prices have fallen over the last four years. So, it’s not surprising that home energy storage has had a slower uptake. This is set to change. Now that grid prices are surging and solar export is undervalued, the battery payback looks much more attractive. Battery storage means a household can avoid higher peak prices and power their home overnight. With little need to buy from the grid, a home battery offers the highest level of energy independence, insulating against price shocks.
It won’t be an easy time for Aussie households.
Everything and everyone is being hit by the cost of living increases right now. Unfortunately, the coming energy cost hike is significant. Households will need to do something if they want to minimise the impact. Whether that’s choosing to shop smartly and monitor your electricity plan prices or taking simple actions around the home to use energy at cheaper times. Or seizing the opportunity for greater energy independence that solar and storage technologies can offer.