Consumers pay the hefty price of Australia’s fossil fuel addiction

Electricity pylons carry power away from Dungeness nuclear power station in Kent as the National Grid warned that a record low demand for electricity during the UK's coronavirus lockdown could lead to windfarms and power plants being turned off to avoid overloading the electricity grid.. Picture date: Tuesday April 21, 2020. See PA story HEALTH Coronavirus. Photo credit should read: Gareth Fuller/PA Wire
Source: Gareth Fuller/PA Wire

Power prices in Australia’s mainland National Electricity Market states look set to rise by between 20 and 30 per cent from July, after two separate pricing regulators confirmed they were likely to lift the default market offers for 2023-24 as a result of the fossil-fuel driven wholesale price surge last year.

The surge in prices come as major utilities lock in high-priced futures contracts in the wake of the ructions in energy markets last year, caused by surging gas and coal prices, and the breakdown of numerous coal generators across the market.

The price jumps could have been worse but for the decision by the federal government to intervene and cap coal and gas prices, but the reality is that prices could remain high until the country’s make big advances towards its renewables target of 82 per cent by 2030.

In its draft determination of the Default Market Offer (DMO), the Australian Energy Regulator forecast power price increases of around 19.5% to 23.7% for residential customers in South Australia, New South Wales and south-east Queensland, and between 14.7% to 25.4% for small businesses in those states.

The AER says this could translate into an annual bill increase of between $320 and $564, depending on the region and whether they have a controlled load. For small business, the bill increase would range between $640 and $1141.

Victoria, too, looks set to see an up to 30 per cent jump in retail power prices, with a draft determination on that state’s Default Offer on Wednesday forecasting a $426 increase in “typical” annual bills for residential customers and a $1,403 increase for small business.

“The proposed increases to the Victorian Default Offer reflect a year of price volatility in the energy market … and are are in keeping with proposed default market offer increases announced in other jurisdictions today,” said  Essential Services Commission chair, Kate Symons, in a statement.

“We understand the impacts on consumers amid a broader environment of cost-of-living concerns and we urge Victorians to take advantage of government support programs offering power price relief,” she said.

Power price settings – and interventions

The DMO, which is the maximum price that electricity retailers can charge customers on standard retail plans, is set annually by the AER and will this year be finalised in May for application in July.

Last year, the release of the final DMO determination, bumped up the benchmark for electricity prices by between 8.5 and 14.1 per cent was controversially delayed by the former federal energy minister Angus Taylor until after the federal election.

Current federal energy minister Chris Bowen said on Wednesday that the rise put forward by the AER was “big” and would be “very tough” for many families and businesses, but would have been a great deal tougher without the Labor Party’s market intervention to cap coal and gas prices in December.

“These figures bear out the intervention,” Bowen said in a press conference on Wednesday morning.

“They bear out the forecasts and predictions we made. In fact, the relief may be higher than we anticipated. And thank goodness… that we were able to conduct that intervention because 20% increase is a very tough 50% increases would have been crippling.”

AER chair Clare Savage confirmed this view in an interview on ABC Radio on Wednesday, saying the DMO would likely have risen by between 40-50% without the Albanese government’s intervention in the energy markets and its cap on coal and gas prices.

“Since [the government] started talking about interventions in October last year, the prices seem to have stabilised in the last couple of months,” Savage said.

Savage also suggested that if wholesale futures prices continued to fall, then the final determination on the DMO in May could also come down.

“But I don’t have a crystal ball. If we saw major plant outages or reliability concerns, they could also rise,” Savage said.

“So we just need to keep collecting that information until we make the decision in May.”

In Victoria, around 400,000 residential and 55,000 small businesses customers are currently on the state’s Default Offer, which also acts as a cap for the approximately 150,000 consumers in embedded networks, like apartment buildings and shopping centres.

The ESC’s Symons says that state’s draft decision does not directly impact the roughly 85 per cent of customers on retail market offers and all Victorians are encouraged to shop around to find the best deal for them.

In the DMO states, the number of customers on the standard retail offering is put at around the 660,000 mark, or about 10 per cent.

So, while these default offers don’t technically directly affect the vast majority of retail customers in the four states, they do tend to act as a benchmark for the rest of the market, which is expected to see power prices rise too.

The AER’s Savage said it was important for customers to understand that the DMO was not the best offer, but rather a sort of safety-net for customers who, for whatever reason, did not seek better offers.

“We know many households and businesses are already struggling with cost-of-living pressures. This is certainly a challenging environment for people to hear that further electricity price rises are on the horizon,” Savage said.

“We encourage consumers to shop around for the best electricity deal for your circumstances.

“If you’re struggling to pay your bills, contact your retailer as soon as possible because under national energy laws they must assist you,” she said.

Bowen, meanwhile, said the course of international fossil fuel prices were impossible to predict, given the nature of international politics, but they could remain high for some time.

In the meantime, his government would pursue its 82 per cent renewable energy target with vigour, he said, while rejecting suggestions from the opposition LNP that Australia should go nuclear.

“The cheapest form of energy is renewable energy. That’s why we’re working to get our energy grid to 82 per cent renewables by 2030,” Bowen told reporters.

“We will. Right around the world, experts recognise that nuclear is very expensive, particularly expensive in Australia, because we don’t have a nuclear industry to start with.

“We’d be starting from scratch without the infrastructure and the resources necessary to underpin a nuclear industry. Nuclear power plants are very expensive. They run over budget, they run overtime.

“Mr Dutton can go off on this fantasy frolic if he wants. We’ll remain focused on the job of introducing more of the cheapest form of energy, the cheapest form of energy which is renewables.”

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