The formal announcements of big jumps in household energy bills – deliberately delayed until after the May 21 federal election – have begun, with a 5 per cent jump in prices revealed for Victorian households.
The price hike – expected to be replicated by other states – follows a huge jump in wholesale prices, caused by a potent mix of soaring gas and coal prices, coal outages, and pricing power from the lack of competition in the market.
The jump is already starting to take its toll on small energy retailers, with some – such as Pooled Energy – forced to appoint administrators and close shop and others, like LP Energy, actually urging customers to go elsewhere to relieve the pressure on their balance sheet.
Wholesale prices take some time to flow through to retail bills and the Australian Energy Regulator, as RenewEconomy flagged last week, had been expected to release its new guidance on May 1, but put it off until after the election so it could “do more research.”
That announcement is now expected anytime from tomorrow, but in the meantime, the Victorian Essential Services Commission has revealed that the annual bill for a typical residential customer in that state will jump by around 5 per cent.
It expects the bills to rise from $1,342 set under the Victorian Default Offer from January 1, 2022, to $1,403 for the 2022-23 financial year, or an average of $61.
“The main reason for the increase is a forecast rise in wholesale electricity costs, reflecting recent changes in market conditions and rising energy prices,” the ESC said.
“For residential customers, the wholesale electricity cost benchmark has increased by around 12 per cent, accounting for almost two-thirds of the increase in the Victorian Default Offer.”
And more of the same – both in terms of forecast retail price hikes and the justifications given for them – is expected from the Australian Energy Regulator on Thursday, when it announces the Direct Market Offer for 2022-23.
In its own statement accompanying the VDO on Monday, the ESC said it, too, had delayed the unveiling of its market estimates for contract prices for this determination period, reading up to May 06, 2022.
In the ESC’s case, the Commission said the delay was “due to the significance of wholesale costs to the Victorian Default Offer, and recent sharp changes in market prices for electricity.”
But whatever the reasons, the timing looks awfully convenient for the ousted Morrison government and its energy minister, Angus Taylor.
Taylor, who has claimed credit for past electricity price reductions delivered by renewables even as he lamented that there was too much wind and solar on the grid, repeatedly claimed during the election campaign that power prices would double under a Labor government.
And wouldn’t you know it, they’re headed that way – although for none of the reasons Taylor claimed (claims that were very quickly and comprehensively debunked).
Already so far this year, wholesale spot prices on the National Electricity Market are averaging at about 50% higher than last year in Victoria, South Australia and Tasmania, about 80% higher in NSW, and 150% higher in Queensland.
These soaring spot prices are said to be driven by a mix of factors, including global geopolitical ructions, a series of unfortunate local coal plant failures, and a national electricity market that – thanks to a long-term lack of clear policy from the top – is well behind where it should be on the road to renewables.
“The market is completely broken – I’ve never seen anything like it in my 20-odd years of trading,” a long-time industry insider told RenewEconomy last week. “We’re going to lose jobs, we’re going to lose industry… It’s absolute madness.”
And a fine mess to hand to a new government, who, as analyst Tristan Edis pointed out last week, would inevitably get the blame.
“If Labor are elected on Saturday I can see them being blamed for power price rises that are already unfolding in the wholesale market but will only hit residential retail prices in a few months’ time,” he wrote last week.
“Actual causes – spiking coal and gas prices and coal breakdowns – will be ignored.”
Tim Nelson, a former AGL economist and now head of markets at Iberdrola Renewables, noted in another Tweet on Tuesday that prices in NSW – which are averaging 300/MWh so far in the month of May – are likely to finish the quarter at twice the level of the previous quarter.
“At the moment (1 week before winter), there is (about) 4GW of coal out in NSW and VIC alone,” Nelson Tweeted. “And people continue to talk about capacity markets – paying plant that is not available!”
In the meantime, AEMO has withdrawn the licence from Pooled Energy, which had been backed by a $2.5 million grant from ARENA to pursue efficiency and demand management in backyard pools.
The Australian Energy Regulator is expected to invoke its “retailer of last resort” mechanism – for the first time in more than three years – so Pooled Energy’s customers can be distributed to other retailers.