Markets

Soaring electricity prices start to bite, but worst delayed until after election

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Consumers and small retailers are starting to feel the effects of Australia’s soaring wholesale electricity prices, with reports of 100% increases in electricity charges from some smaller retailers and an energy market that is “completely broken.”

With wholesale spot prices averaging at about 50% higher than last year in Victoria, South Australia and Tasmania, about 80% higher in NSW, and 150% higher in Queensland, focus is turning to the inevitable knock-on effect on consumers and the broader market.

But the true impact on retail prices will depend on the outcome of the upcoming Default Market Offer, in which the Australian Energy Regulator each year determines the maximum price a retailer can charge customers on default contracts, known as standing offer contracts.

Last year, there was much rejoicing when record-breaking investment in large-scale solar and wind led to a generous reduction in the 2021-22 Default Market Offers that promised to deliver more than $65 million in bill savings.

This year looks set to be a completely different story.

This financial year’s DMO was due to be announced by the AER on May 01, but has been pushed out to Thursday May 26 – next week – presumably so that any fallout from higher prices can be dealt with after the federal election on Saturday.

This delay could wind up looking like a clever ploy by the Coalition government, should it lose the leadership to Labor, or as a serious own goal if it is re-elected just as the proverbial hits the fan.

Either way, governments everywhere will have some heavy duty explaining to do and no doubt we can look forward to some top rate political finger pointing and blame shifting as retail prices jump.

In the meantime, reports are already emerging of some second-tier energy retailers including Sydney-based Discover Energy and LPE in Queensland issuing warnings to customers of a doubling in rates and even advising them to seek new suppliers, as high spot prices bite.

The Australian reported on Thursday that Queensland’s LPE, with more than 20,000 customers, sent a sent a letter to customers strongly encouraging them to find alternative suppliers following its decision to increase charges by more than 100 per cent on June 1.

Adrian Merrick, the founder and CEO of upstart retailer Energy Locals, whose offering gives access to fixed wholesale electricity rates, says it too will have to pass through some price increases in June, but not anywhere near those being passed on by retailers that opted not to hedge.

And while the “mum and dad” customers of larger retailers and gen-tailers are unlikely to feel the pain of the unprecedented wholesale spot price rises until sometime next year, things are not looking pretty.

“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 on Friday under the condition of anonymity.

“We’re going to lose jobs, we’re going to lose industry… It’s absolute madness.”

It’s not entirely clear what is behind the mess, but insiders and analysts say at least some of the blame lies with the series of coal plant calamities, coming one after the other, since the explosion at Callide in Queensland this time last year.

Also important is that these calamities unfolded at the same time the market was just getting used to consistently low spot market prices from increasing amounts of solar and wind generation capacity and periods of record low consumer demand.

People got complacent and stopped hedging, our market trader source says. And then along comes Russia and invades Ukraine.

“What’s then happened is, because of Ukraine, they’ve all pointed to the coal price coming out of Newcastle.

“The wholesale spot market is getting priced off this thermal price off the coal index, when a lot of that can’t even be exported.

“Gas is even more perplexing,” he adds noting the huge price rises in that market despite the fact that Australia is barely exporting more than normal.

“It’s curious that people that are blaming international prices when most of the stuff used for generation could never be exported anyway,” says Energy Locals’ Merrick.

“Customer demand doesn’t appear to be spiking. It really is the generators taking advantage of the situation.”

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