Electricity bills around the country are going up, by as much as 20% in some states, raising average bills by between $300 and $400. And this follows price rises of between 60% and 100% over the preceding half-decade, making energy prices the largest proportion of the household budget since the 1960s and 70s.
With many Australians struggling to cover their expenses, and electricity bills the biggest worry for households, you might be wondering what’s behind the rises of the past few years, and the current jump.
The basic components of your electricity bill are still dominated by the same things. The cost of getting the electricity from the generator to your home – building and maintaining the poles and wires (“network costs”) – is the biggest component, accounting for roughly half of your bill.
Most of the rest is made up of the wholesale cost of electricity, combined with the retail markup.
Other policy costs – including green schemes – make up between 5% and 15% of the cost of your bill, depending which state you live in.
Since 2001 the prices Australians pay for electricity have risen by between 60% and almost 100%. The highest increases occurred in Queensland and Victoria, and the smallest in the ACT.
In previous years the Australian Energy Market Commission has found that the majority of price rises were driven by increasing network costs.
Electricity network companies came under a lot of scrutiny for those prices rises. They have a natural monopoly, since there is only one set of poles and wires delivering you your electricity. The Australian Energy Regulator concluded they were exploiting that monopoly by over-investing in their networks (known as “gold plating”), and then passing on those costs to the consumer.
As a result, the AER ruled they had to stop passing on those costs, but the companies appealed the decision and won. The system is widely said to be skewed in favour of the giant monopoly network businesses.
Network price rises continue to play a role in increasing retail prices, but since 2015 wholesale prices for electricity have been going up, and now retailers are beginning to pass those costs onto consumers.
According to AEMC analysis, the retirement of ageing coal power stations in Victoria and South Australia have contributed to the rising wholesale – and resultant rising retail – prices.
By withdrawing a whole lot of supply those closures gave more power to expensive but flexible gas generators to set the price of wholesale electricity – filling in the gaps left by renewable generators.
And just as that has happened, domestic gas prices skyrocketed, as Australia’s gas is sucked up by Queensland’s LNG terminals and shipped overseas.
As the following chart produced by the ANU’s Hugh Saddler for the Australia Institute shows, wholesale electricity prices closely follow those of gas in South Australia.
The AEMC says it is hard to extract the contribution that retailers add to your bill, but the Australian Competition and Consumer Commission is examining whether there is a lack of competition pushing up prices.
In a recent speech the head of the ACCC, Rod Sims, said: “[We] have considerable concentration in the retailing of electricity, with the three vertically integrated players having the lion’s share of the market. We seem to have high standing or default prices which for a range of reasons are not being competed away.”
“The ACCC will look closely at retailer behaviour and offers to see if there are ways to help people find much cheaper electricity offers.”
In July the Australian Energy Regulator estimated that some customers could save as much as $1,400 a year by switching from the most expensive offer on the market to the cheapest. They encouraged people to use their Energy Made Easy website, which compares retail prices for energy consumers.
The prime minister, Malcolm Turnbull, has asked electricity companies to give their customers more information about power plans.
Retailers agreed to new measures after a meeting in Canberra on Wednesday including writing to consumers who have reached the end of a discounted plan, to clearly explain other offers available.
But energy executives also told the PM policy certainty was required to help lower power prices for consumers – and said they are not interested in prolonging the life of coal plants.
They also agreed to report to the government and to the competition watchdog about steps they are taking to help customers, particularly what they are doing for families and individuals under a hardship program. Companies pledged that those customers would not lose any benefit or discount for late payment.
Turnbull said these changes would become part of the national electricity laws.
The government is ending the limited merits review, which is used by power companies to get higher increases in bills than that set by an independent arbitrator.