Graph of the Day: Australian retail electricity prices in 2020

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).

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.