Australian homes could slash energy bills by two thirds by cutting out gas and petrol, AEMC says

Australian households could lower their bills by over two thirds if they fully electrify their home by cutting out gas and petrol according to a new report.

According to the Australian Energy Market Commission (AEMC), achieving this will require a “well-managed” transition to electrification and efforts to ensure equity so that renters, those living in apartment blocks and those who cannot afford the upfront investment are not trapped with higher bills.

The report, delivered as a 38 page slide presentation, is a vastly slimmed down version of what the agency, which is responsible for writing the rules that run the gas and electricity markets, used to publish prior to the pandemic when it released data-driven deep-dives that ran for over a hundred pages.

AEMC itself has also faced a changing role as the nature of the Australian energy sector has evolved. A lack of national direction on questions such as the transition to renewable energy has prompted states to pursue their own strategies, making it hard for AEMC to fulfill its function and coordinate that change.

It’s Residential Electricity Price Trends report is the first time the agency has looked specifically at the average households total energy use usage to understand how changes in the market will affect individuals.

The analysis suggests that a household which phases out oil and gas in the home – by buying an electric vehicle (EV), installing solar panels and batteries, and charging during times of the day when power is cheaper – may expect to reduce their energy expenditure by 70%. For a typical household this represents a drop from $5000 a year to under $1,500.

Those households with an EV are expected to save more each year as they avoid volatile petrol costs and the cost of running their car will be lower.

In addition, the agency suggested that residential electricity prices will fall by 13% over the next ten years in its base case scenario as new renewable energy supplies come online and demand picks up with greater electrification.

Across its regional breakdown, the agency found prices in the ACT are projected to fall 31%, a much larger decrease than the national trend, with Queensland, South Australia both averaging 15%, New South Wales averaging 14% and Victoria averaging 9%.

This suggests an inverse scenario for electricity to what is already being experienced in the gas market. There, users are being slugged by networks to cover the rising cost of maintaining their infrastructure in the face of falling demand as their customer base fades with electrification.

Anna Collyer, AEMC Chair, said in a statement that the agency’s modelling work showed Australian households stood to benefit from electrification, but “we need to ensure this transition is well-managed and equitable, so that the benefits are accessible to all households, not just those who can access new technology immediately.”

Dr Dylan McConnell, an energy systems analyst at UNSW, said the analysis highlighted the need for more coordination to accommodate greater electrification, but added he was sceptical about the price reductions it anticipates.

“It’s very debatable or arguable whether the overall cost of the network will go up or down due to electrification and changes to the regulatory regime. You can make compelling arguments either way that it’ll go up a little bit, or down a little bit,” he said.

“I would make the distinction between unit costs and overall costs. Because the unit cost goes down, it doesn’t mean the overall costs go down.”

When it comes to the AEMC’s broader work around electrification, McConnell said “it is useful to say that it’s not all doom and gloom” after successive campaigns to push back against renewable energy in the community and politics over the last two decades, but “the challenge is actually doing it quickly and well.”

“It is one thing for it to be the economically rational thing to do but there’s a lot of soft barriers and institutional barriers to achieving that,” he said. “That’s why AEMC putting this out, it does point to various things to make that actually achievable.”