Electricity prices set to plummet as strong wind and solar investment kicks in

The Australian Energy Market Commission has predicted electricity prices across Australia may fall by as much as 20 per cent in some places, as strong investment in solar and wind projects drives down wholesale electricity prices.

In its latest electricity price trends report, the AEMC has predicted household electricity costs could fall by 20 per cent in south-east Queensland by 2021/22, followed by falls 8 per cent in New South Wales, 5 per cent in Victoria and Tasmania, and 2 per cent in South Australia.

The two jurisdictions with the highest renewables uptake, Tasmania and the ACT, will continue to pay the lowest, and second-lowest, electricity tariffs respectively.

The AEMC projects the average Australian energy user will pay $97 a year less for their electricity by 2021/22, with the falls for customers in south-east Queensland, which are driven by both lower wholesale costs and significantly reduced network tariffs, reaching as high as $278 a year.

While the results are very positive for Australian households who have faced the brunt of rising electricity prices over the last decade, the AEMC warns that the energy market could deviate from the projections due to unexpected developments.

“More supply puts downward pressure on prices,” AEMC chairman John Pierce said. “But it’s important to note that over a decade of analysis we have seen trends change sharply in response to factors such as sudden generator closures and implementation of new policies. As such, all price projections should be seen as just that, projections.”

While the AEMC’s projections are predicated on strong renewable energy investment, the cost of “green schemes”, which include federal and state renewable energy targets and energy efficiency schemes, are also expected to fall dramatically over the next few years.

With the federal renewable energy target peaking in 2020, the costs of green schemes to consumers are expected to fall by 23.9 per cent by 2021/22, mostly driven by a fall in Large-scale Generation Certificates, saving the average household $22 a year.

The AEMC cited the strong pipeline of committed renewable energy projects, which includes 2,338MW of new solar projects, 2,566MW of wind and 210MW of new gas generation capacity.

The AEMC expects that an additional 1,555MW of new battery storage capacity is likely to be added to the system by 2021/22.

No new coal projects were included in the AEMC’s projections, as none are expected to be built.

These investments are expected to be responsible for more than half of the reductions in electricity prices through lower wholesale electricity prices (down 11.6 per cent), with the falling costs of network infrastructure (down 1.8 per cent) and environmental schemes (down 23.9 per cent) also contributing to the positive result for consumers.

Western Australia was the only jurisdiction expected to see an increase in electricity prices, predicted to increase by 6.4 per cent by 2021/22. This predicted increase is primarily driven by increasing gas prices, with gas generation supplying around 60 per cent of Western Australia’s electricity supply.

Electricity prices have risen dramatically over the last ten to fifteen years, initially driven higher by over investment, and ‘gold-plating’ of network infrastructure, and later pushed higher as investment in new power stations stalled due to ongoing energy policy uncertainty.

Increases in electricity prices have substantially outpaced both increases in wages and the consumer price index.

Due to the different dynamics in different states, the price reductions driven by renewables investment varied from state to state, but most households should experience some price relief over the next couple of years, according to the AEMC’s forecast.

“While the overall national trend is down all across the supply chain there are regional differences across states and territories that will affect price outcomes depending on where you live and how much electricity you use,” Pierce added.

“Overall, a representative consumer will pay around $97 less than today by June 2022.”

The AEMC estimates that $62 of these savings will come from lower wholesale electricity prices, and lower network costs and environmental scheme costs will contribute $11 and $21 in savings respectively.

Federal energy minister Angus Taylor welcomed the forecast, who is in Madrid for international climate talks, saying that he believed electricity prices had “turned a corner”.

“The AEMC forecast complements a number of recent reports showing prices have started to turn the corner.” Taylor said.

“The Australia Bureau of Statistics Consumer Price Index data shows for the first time there have been three consecutive quarters of national electricity price reductions.”

“The introduction of the Government’s Default Market Offer on 1 July 2019 has capped standing offer prices and has taken the confusion out of getting a fair deal while seeing increased competition in the market.”

The AEMC encouraged households to shop around for their electricity, to ensure they were getting the best deal from electricity retailers.

“Price trends will affect individual households differently depending on how much electricity each consumer uses, and how willing they are to switch to a better energy deal where market offers are available,” Pierce added.

“It will continue to be important for customers to shop around to get the best deal for their circumstances through government comparison sites such as the AER’s Energy Made Easy; in Victoria, Victorian Energy Compare; and in NSW, Energy Switch.”

Labor climate change and energy spokesperson Mark Butler said that while falling electricity prices is welcomed, the falls are shadowed by the substantial increases in prices seen in recent years.

“This Government has presided over record power price increases that have crippled household budgets and threatened the viability of businesses across the nation,” Butler said. “In just the 15 months since Angus Taylor became the Minister for ‘bringing power prices down’ wholesale power prices have skyrocketed by more than 20 per cent.”

“The AEMC today has predicted that wholesale power prices might come down by 7 per cent over the next three years, recovering maybe one-third of the increase seen already under Angus Taylor’s time as Minister.”

“In any event, the only reason for any modest price relief is the investment boom of renewable energy that occurred under Labor’s Renewable Energy Target – a policy Angus Taylor has consistently opposed.”

The projection from the AEMC comes as new projections from the federal environment department of Australia’s greenhouse gas emissions shows the government expects to achieve 51 per cent renewables across the National Electricity Market by 2030.

During the 2019 election campaign, the coalition repeatedly called Labor’s commitment to achieving 50 per cent renewables by 2030 an ‘economy wrecking target‘.

It now appears the Morrison government is now relying on achieving that same milestone to both drive down electricity prices and achieve its 2030 emissions reduction targets.