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Graph of the Day: Australian retail electricity prices in 2020

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Australian consumers have been buffeted by some hefty electricity price rises in the last few years, and face yet more in the next couple of years. But how long will it last, and what sort of price will householders be facing in 2020?

It’s not the sort of question – or time horizon – that customers would normally be worried about, unless you are considering the value of producing your own energy – either with solar PV or some other, and possibly with battery storage – or if you are in the market to manufacture or sell such systems.

That’s what makes this forecast by AGL economists Paul Simshauser and Tim Nelson so interesting. In an article written for a CEDA policy paper, the two economists argue that nominal electricity price rises can be contained, and a fall of 10 per cent in real prices (adjusted for inflation) can be achieved. This, though, is dependent on the government follows its recommended policy actions, a lot of which centres around the deregulation of pricing regimes, and the greater deployment of time-of-use pricing.

What’s interesting about this graph is the contrast between nominal electricity prices (shown in the coloured bars), and real electricity prices expressed in 2013 dollars (shows in the black line).

For nearly three decades, nominal electricity prices were steady, jumped in the 1980s, steadied again, and then surged in the last five years as utilities scrambled to cater for surging peak demand and replacing ageing infrastructure (and, one now suspects, indulging in a lot of overbuilding).

Real prices fell from the 1950s until the mid 2000s. In fact, according to this graph, the cost of electricity is only now back to where it was in the 1970s.

The other highlight of the graph is the component of the bill. Again, the cost of renewables represents a tiny band that actually gets smaller by 2020 – network costs and generation costs (fuels such as coal and gas) form the largest components, followed by the retail costs and margins. Food for thought, perhaps, for advocates of renewable and decentralised energy.

(You may need to click on the graph to see it all).

electricity prices

Just to reinforce that last point, about the cost of renewables, it is worth reproducing another graph included in the paper.

This graph below, which tracks the increase in NSW electricity prices from 2008 to 2013, is not new, but it makes a nonsense of the opposition of the conservative state governments to renewables targets and incentives on the basis of costs, and raises the question why the mainstream parties in the federal arena continue to hedge their bets on the issue.

Perhaps this graph should be published on NSW electricity bills, rather than the government-mandated, politicised and misleading claim that green schemes are adding more than $300 to the average bill.

Screen Shot 2013-02-18 at 9.29.30 PM

 

 

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  • Chris Fraser

    Going by these figures i would then say the true cost of renewable schemes (when added to normal tariffs on per kWh basis) adds about $60 to my annual energy bill. Though it should be said renewable energy is actually cheap. I can purchase 100% renewable energy for an additional $180 per year.

    • http://ronaldbrak.blogspot.com.au/ Ronald Brak

      It’s actually much better than that. Wind and solar push down wholesale electricity prices and so save consumers money, or as it seems to actually work, prevents distributers from charging even more. South Australia has had an impressive decrease in its average wholesale electricity prices as a result of its renewable capacity. And in addition to rooftop solar’s effect on wholesale prices, it also results in significant savings in transmission costs, as currently a hellicious amount of money is being spent so Australians can turn on almost all their air conditioners at once and rooftop solar helps reduce the need for that added infrastructure.

  • David

    Of the $11 of “Renewables” (whatever that may mean) a good portion must be due to the LRET. This is surely going to be dramatically reduced this year with the reduction in multiplier and also a likely cut in installations. The thing to keep in mind with the LRET component is that 15 years worth of production is paid for in advance. If the installations stop tomorrow, the LRET costs stop but the already installed panels keep on producing.

    • Giles Parkinson

      Only the solar panels get their deemed production in advance. For the larger scale utilities, such as wind, they get their RECS certificates only once they produced.

  • peter b

    This and other articles talk of increasing coal costs and its effect on future power generation costs. But as alluded to in yesterdays article on the decrease in coal company share prices, won’t the thermal coal price actually collapse as renewables expand into the market?

    • Giles Parkinson

      Be a while for that to happen. First thing to happen will be cost of coal to black coal generators jumping sharply as legacy mines become exhausted and they are forced to pay export parity price, barring another subsidised price from the state governments, a la Cobbora.

  • Mike

    It would be interesting to see these on time of day basis. Currently it is 3:30 am and I can afford to use my computer because I am paying $11 pmh – (0.11 pkh on my bill) and I am sure the electricity co is still making a profit. Peak I am paying over $40.