High energy prices are here to stay: Grattan Institute

Tom Watson

Thursday 05 July 2018

Just when Australians thought they might be in for a bit of relief on their energy bills following the announcement of less severe July 1 price changes, a new report into the Australian energy market has warned that the current high prices are the ‘new normal’.

High energy prices are here to stay: Grattan Institute

The ‘Mostly working: Australia’s wholesale electricity market’ paper, released by the Grattan Institute on July 1, reported that wholesale energy prices have risen rapidly in recent years, with a price jump of 130% between 2015 and 2017.

As costs are passed down the line, the trend means that households in the NEM (National Electricity Market), which includes the ACT, New South Wales, Queensland, South Australia, Tasmania and Victoria, are paying more come bill time.

In fact, the Grattan Institute report highlighted a 20% increase in household energy bills in 2017 alone.

RELATED: July 1 energy price updates 2018: a pleasant surprise for some

Tony Wood, Grattan Institute Energy Program Director, said that the report findings spelled bad news for Aussie households and businesses, suggesting that they needed to brace themselves for the new price reality.

“Wholesale prices are very unlikely to return to previous levels of around $50 per megawatt hour,” he said.

“Politicians should tell Australians the harsh truth: high wholesale electricity prices are the new normal.”

What’s behind the price rises?

According to the report, there are three underlying issues which have contributed to the growth in energy prices over recent years.

1. The closure of coal-fired power stations

The closure of the Northern Power Station in South Australia in 2016 and the Hazelwood Power Station in Victoria last year reduced supply and therefore pushed prices up, the report stated. However, the report also suggested that despite the fact that the power stations were low-cost to run, they both faced huge maintenance bills that weren’t worth paying given the low prices they were receiving for the energy they produced.

2. Input costs rose just as plant demand increased

According to the report, the price of black coal and gas both rose just as the power plants that relied on them to produce energy were themselves needed more often. Once again, this had a flow on effect and bumped up energy prices for households.

3. Major electricity generators are ‘gaming the system’

The report also suggested that major electricity generators have been exploiting their power in concentrated markets to create ‘artificial’ scarcities in supply and, as a result, ramp prices up. While this has allegedly been taking place predominantly in Queensland and South Australia, the report indicated that there were signs of the same ‘gaming’ in Victoria. 

What can households do?   

While the Grattan Institute made a number of recommendations including the need for more stable energy policy from the Federal Government and action from the Australian Energy Market Commission (AEMC) to address the issue of ‘price gaming’, Australian households may feel resigned to a future of high energy bills.

But there are number of ways households can take action to reduce the amount of energy they use, as well as the amount they pay.

  • Compare and switch: Following the 2017 energy price changes, an analysis by Mozo found that some households could stand to save up to $1,086 on their yearly energy bills by making the switch from the most to least expensive provider on the market. While prices have been updated, many households could find it worthwhile to compare their current energy deals with other offers on the market to see if they could pocket a bundle by making the switch.       
  • Reduce consumption: It may seem obvious, but there are likely to be plenty of ways your own household could cut back on energy consumption (and bills) by making some minor changes. From reducing shower time to turning down the heating dial, recent Mozo research found that bad energy habits are set to cost Aussies $1.09 billion this winter alone.
  • Go off the grid: While it’s a more of a long-term solution, a record number of Australians are joining the move to solar power in order to offset their energy bills. Unlike switching to a better value deal or reducing your usage, installing solar panels on your home will come with an upfront cost which is why it’s worth weighing up the benefit for your own home before taking the plunge.

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