The Australian Energy Regulator (AER) has confirmed electricity prices will increase by between 20 and 25 per cent from July 1 — higher than the draft offer put forward by the regulator in March — while Victorian prices will rise by 25 per cent.
The AER's decision will directly affect around 600,000 customers in South Australia, New South Wales and south-east Queensland who are on the default offer, which is a benchmark price designed to keep a lid on price rises for household and small business customers.
In March, the regulator released draft electricity price increases of between 20 and 22 per cent.
But the AER said after listening to stakeholder feedback, the default market offer has resulted in a "small change of between 1 per cent to 3 per cent" difference from its draft offer.
"The changes we have made are largely updates based on additional, finalised information and refinements to our methodology to better reflect the costs of retailing electricity," the AER said.
Chair of the AER, Clare Savage, said the price increases are "fairly close" to the draft offer, and much lower than previously expected.
"But still obviously [a] significant price rise for customers and difficult news at a time of cost of living pressure," she said.
Residential customers will see price increases between 20.8 per cent and 23.9 per cent for those without controlled load, and between 19.6 per cent at 24.9 per cent for customers with controlled load.
Small business customers are facing increases of 14.7 per cent and 28.9 per cent.
Victoria's Essential Services Commission (ESC) also released its default offer on Thursday, with a 25 per cent increase — equivalent to a $352 increase to residential customers, and $752 rise for small business customers.
The increase depends on the provider, with default prices rising for Victorian customers by up to 27 per cent in some instances.
The price changes will come into effect on July 1.
The prospect of increasing energy prices from July 1 are weighing heavily on mechanic Ahmad Jalil.
His business in western Sydney has seen its energy bills increase by 30 per cent in a year, at a time when his business is down by the same amount.
He said it was impossible to decrease his energy use.
"A lot of workshops run on three phase power; it draws a lot more energy," Mr Jalil said.
The thought of his electricity bill going up, even more, is stressful. He rents the building his business is in, which makes it riskier to invest in energy efficiency measures like solar.
"If we owned the premises, we would probably feel a bit more comfortable making that type of investment, you know, over say, a five- to seven-year period," he said.
"But because we're renting, it's [the upfront costs] an expense that we can do without at the moment.
"Like with anything we stay positive, put our heads up high. And you know, just put a smile on our face and do the best we can with our customers."
Price increases account for rising inflation
Speaking on RN Breakfast on Thursday morning, Ms Savage explained that inflation had been a substantial factor in the price increase.
"There's an increase in the costs of building or recovering the cost of our transmission and distribution systems … and there's also inflation that's applied to the costs that retailers face," she said.
"So there is a bit of inflation that flows through in this final decision today. And we have updated for the latest inflation data."
But she said price rises would have been significantly higher if it was not for the federal government intervening.
"When we were looking at the price, what the prices could have been last September, October, we were estimating between about 35 and 50 per cent, would have been the number I would have had to have announced today, which obviously would have been a very terrible thing to have to do," she said.
"What we're seeing is the sort of contracts that retailers buy for the coming financial year have fallen quite a bit since intervention in the coal and gas markets in October last year.
"They are about 40 per cent lower than they were in October last year.
"But they're still much higher than where they were at the start of 2022, which is why we're still seeing a significant increase."
Ms Savage said those eligible for energy rebates announced in the federal budget would negate the price increase.
"They'll receive a $500 rebate on their bill; the price rises we're talking about today are mostly less than that," she said.
"So in most circumstances, those eligible customers won't experience a price increase this year."
Ms Savage encouraged people to shop around to ensure they were on the best offer possible by using the regulator's website energymadeeasy.gov.au.
Bill hikes 'really hard' to manage
Arturo Morales lives in Melbourne's western suburbs and is still recovering from his most recent energy bills.
"We compared it to last year's usage and it was quite similar but just so much more money," he said.
"Obviously, coming to winter now, the house is pretty cold with just the weatherboard. We'll try to just stay in one room," Mr Morales said.
Mr Morales had been expecting the ESC to lift energy prices by its draft offer of 30 per cent, but even with a smaller than expected rise, he said it was still a substantial increase.
"That is huge, that is huge," he told The Business.
"It's only two of us in a home, and I think that we can probably manage, but … I feel sorry for families, young families with a mortgage and young kids … even university students.
"It's just going to be really hard for everybody. And I think the government needs to have a good look at it."
Mr Morales said he struggled to understand why Australian electricity and gas prices are so high, despite it being linked to the international market.
"Australia is a big producer of gas, and exports it to the world. So why are we paying so much money for gas when Australia is a huge gas producer?" he said.
"I don't understand that."
Electricity market 'not serving Australians very well'
Bruce Robertson is an energy finance analyst for gas and LNG at the Institute for Energy Economics and Financial Analysis, and said gas is to blame for higher electricity prices.
"Gas is driving the cost of electricity up in Australia today, gas sets the price of electricity and the national electricity market. And the price we pay for gas is insanely high," Mr Robertson said.
"They're laughing at the government over the gas price cap, because the gas price cap is $12. And [Tuesday] in Sydney, the gas price is $19. And in Victoria, it's $21.
"So there really isn't a cap at all. The gas industry is charging prices that aren't just high, and this is a key point.
"They're not just high prices. They're obscenely high prices."
Mr Robertson said gas should be cheaper for Australian customers given it is produced locally.
"We're talking about five to seven times the price of gas in the US today, we're talking prices higher than the importing countries of Europe, much higher than the importing countries of Europe, about 50-60 per cent higher," he said.
"We actually produce gas in Australia. And this is a key point: it should be far cheaper here than it is in other countries. It should be more like the levels of the US, for example."
Director of the Monash Energy Institute, Professor Ariel Liebman, said electricity bills are comprised of several charges, with wholesale prices, network and retail costs the major charges.
"Their [energy retailers'] net profits aren't particularly great, it's expensive to compete in a big market, attracting customers, marketing, and all the information systems," he said.
Professor Liebman said overall reform and deregulation of the electricity market had failed in its ambition to lower prices.
"It's really not serving Australians very well," he said.
"Nothing has really been done to fundamentally bring [electricity prices] down to levels that [experts] want them to be or think they should be, which is probably about 40 per cent, lower.
"The solution to just controlling retail prices is to make the DMO a hard price cap, that would certainly help and actually put in some pressure down below that level."
Is energy price relief in sight?
A volatile global energy market makes it difficult to predict where prices are headed in the next 12 months, Ms Savage said.
She said current forward contracts, which the regulator would take into account for the next default market offer period, are at a "similar price to where we are today".
"It's very early days, but we're not seeing huge jumps in prices, even at the end of that cap," she said.
She said the federal government's intervention could also come to an end, but depends on international markets.
"I think if we see a stabilising in international fossil fuel prices that's possible," Ms Savage said.
While wholesale energy prices had come down in recent months, Professor Liebman said users were paying more based on wholesale contracts locked in by retailers often 12 months ago or longer.
"The strategy is to enter into a kind of insurance contract to protect against price volatility, these are known as financial hedges, fixes the wholesale price retailers pay for electricity over a certain period – from three months up to 2-3 years in most cases," Professor Liebman said.
"The price set in hedge contracts locked-in over the past year or so was influenced by the global gas crisis in 2022, which caused massive rises in Australian wholesale gas and electricity prices."
Professor Liebman said it is also important to remember that the Default Offers are not price caps, but a reference price.
"It's not a cap so they can offer higher than that," Professor Liebman said.
"You may well see prices offered that are 10-20 per cent higher than the DMO out there but good data is hard to find."
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