Millions of households should see power prices fall in the coming year as falling costs for generation have declined from the “extreme peaks of 2022”, the Australian Energy Regulator says.
The regulator released its draft default market offer for 2024-25 on Tuesday, setting a guide for electricity prices in New South Wales, South Australia and south-east Queensland.
The majority of households can expect price cuts of 0.4%-7.1%, while most small businesses could see reductions between 0.3% and 9.7%, the AER said. But the price changes vary by location and load demand.
Victoria’s Essential Services Commission released a separate draft decision, with average residential bills falling 6.4% and 7% for small businesses.
The AER chair, Clare Savage, said the decision took into account wholesale and network costs and environmental and retail expenses. The default offer effectively sets a benchmark price.
“We know that economic conditions have put pressure on many Australians and the increases in electricity prices over the last two years has made energy less affordable for many households,” Savage said.
“While wholesale markets have stabilised since their extreme peaks of 2022, this easing has been offset by the pressures we are observing in network prices. Poles and wires costs are a large component of retail prices, comprising around 40% of the price.”
Electricity prices rose in each of the past couple of years.
In case any one once to see what today's Default Market Offer price drop looks like in context, like I did..
— Dylan McConnell (@dylanjmcconnell) March 19, 2024
(note: nominal dollars) pic.twitter.com/tbmNNoCb5G
The Albanese government has also offered rebates for many consumers. In the December quarter of 2023, power prices were 6.9% higher than a year earlier. Excluding the Energy Bill Relief rebates, the increase would have been 17.6%, the Australian Bureau of Statistics said.
Generation costs, which make up about a third of bills, have been sharply lower in the past year in part because the share of renewable energy has increased. Spot wholesale prices in the national electricity market were 48% lower in the December quarter of 2023 than a year earlier.
Energy minister, Chris Bowen, welcomed the proposed cuts.
“We’ve got reductions today for the first time in quite a while,” Bowen told the ABC’s AM program. “That is an encouraging sign for Australian consumers.”
Gavin Dufty, policy manager at the St Vincent de Paul Society, said the cuts were good news given households were being squeezed by rising costs for housing, transport, medication and other essentials.
With only about 4% of the community on a default price, it was up to consumers to visit websites such as Energy Made Easy to shop around for the best offers, he said.
“The discounts aren’t going to come to households. You have to get up and you have to chase them..”
For a typical NSW household on Ausgrid using 3,900 kilowatt hours annually, the savings would be 6.3% or $114. Small business customers using 10,000kWh would save about $652 or 13%, the AER said.
Victoria’s energy minister, Lily D’Ambrosio, said she was “absolutely delighted” with her state’soffer that would slice about $112 off annual household bills and $266 for small businesses.
“The benefits will flow on by putting downward pressure and greater competition on energy retailers to sharpen their pencils and further cut bills,” D’Ambrosio said.
Juanita Pope, chief executive of the Victorian Council of Social Service, pointed out that the reductions, while welcome, would only reverse a quarter of this year’s 25% increase.
“Without a dramatic decrease in the baseline price, the VDO will trap even more Victorians in poverty,” Pope said.
The regulator said network cost increases were driven by inflation and interest rate rises. NSW’s roadmap for speeding up renewable energy projects also added to costs.
“Our draft determination should still allow a retailer to recover their costs and make a reasonable profit ,” Savage said.
Recent data show prices were already falling, with the median market offer easing 1-5% in most zones in 2024. The most competitive market offers were 18-23% below the default market offer, Savage said.
The Coalition said Labor had broken a “fatal promise”, given its pre-2022 pledge to reduce household power bills by $275 by 2025.
“Australians are now paying among the most expensive bills in the world,” said Ted O’Brien, the Coalition’s energy spokesperson.
The AER will release its final decision on the default market offer in May.
