Millions of Australian households will be hit by rising electricity costs after the energy industry watchdog raises key prices by hundreds of dollars a year.
Most important points:
- Benchmark electricity prices set to rise to 18.3 percent according to Australian energy regulator decision
- Increases in the so-called standard market offers will amount to hundreds of dollars per year in some cases
- The AER has cited skyrocketing wholesale power costs, which have risen more than 140 percent in the past year
In a new blow to households facing a rising cost of living, the Australian Energy Regulator (AER) has decided to pass significant increases into a benchmark power price.
Fares, known as standard market offers, will rise between 8.5 percent and 18.3 percent in New South Wales, to 12.6 percent in south-east Queensland and 9.5 percent in South Australia.
Small business customers will also be affected by the changes, with so-called fixed offer prices rising to 13.5 percent.
The increases, which take effect from July, will exceed $250 per year in some cases based on Australian Competition and Consumer Commission figures, bringing the average residential electric bill to $1,434.
They are also tracking a similar, albeit smaller, rise announced by Victoria’s Essential Services Commission on Tuesday.
Clare Savage, the chairman of the AER, described the decision to substantially raise prices as “extremely difficult”, but she said the cost pressures facing electricity suppliers were real.
Ms Savage also pointed out that the benchmark price should not be the lowest price available and urged consumers to shop around for a better deal.
“In setting up this new DMO [default market offer] prices, we understand the significant impact they will have on some consumers who may already be struggling with cost of living pressures,” said Ms Savage.
“If a large number of retailers are unable to recoup their costs and are forced to exit the market – as we have seen recently in the UK – it will increase the cost to consumers.”
Flying costs the background
The decision will come just a few weeks later the agency that controls the National Electricity Market said wholesale prices rose by more than 140 percent in the 12 months to March 31†
This increase was largely caused by rising coal and gas prices, linked to international markets that have traded at record highs amid the war in Ukraine and global instability.
Under their purview, the AER and Victoria’s Essential Services Commission have set benchmark electricity prices that act as a safety net for consumers who are unwilling or unable to negotiate with their suppliers.
Prices have been relatively stable lately as an influx of renewable energy and lower demand for coal and gas weigh on the wholesale market.
But energy retailers have pushed for a big hike in rates this year as costs rise in the face of: moves to accelerate the exit of coal-fired power plantsunexpected generator failures and international unrest.
The Australian Energy Council, which represents electricity and gas suppliers, says the share of households on the standard price is relatively small.
It noted that about 10 percent of users would be directly affected by the changes, with the rest on “competitive” contracts negotiated with their supplier.
The lobby also pointed out that wholesale costs typically accounted for about a third of a $1,434 residential electric bill, with poles and wires accounting for a larger share.
Watchdog stands for ‘balancing act’
Tony Wood of the Grattan Institute said the standard price may only cover a small percentage of the market, but it was the main reference used by all retailers to determine their other offerings.
According to Mr Wood, the AER’s decision would have a significantly larger impact than usual due to the volatility in the wholesale market.
He said there was little doubt that costs were rising sharply, but he noted that some providers were more exposed than others.
For example, he said that larger retailers such as ASX-listed companies AGL and Origin were better able to manage wholesale market risks through long-term and stable supply contracts.
On the other hand, he said that smaller retailers are often highly exposed to the spot market and shorter supply contacts, meaning they can come under heavy pressure in a soaring market.
“A Queensland-based retailer with around 20,000 customers was actually telling their customers to leave,” he said.
“They said, ‘We can’t supply you with a product that we think you can afford, so we recommend that you find another seller’.
Mr Wood said the AER needs to strike a balance between ensuring a competitive electricity market and ensuring that tariff increases are fair and reasonable.
He said that while some providers are pushing for excessive hikes, it would be “provocative” to raise the benchmark price by 20 percent.
Don’t feel helpless: lobby
Lynne Gallagher, the CEO of the Energy Consumers Council, said the price hikes would come “at the worst possible time.”
However, Ms Gallagher said “consumers shouldn’t feel helpless with rising bills”, saying there were ways to minimize the impact on their budget.
Among them, they pushed their retailer for a better deal, asked for help when they struggled to pay, used less and were more efficient, switched providers when necessary, and applied low-cost measures such as “door hoses, rugs and weatherproof tape” to allow insulation. add.
The ECC also suggested that retailers should actively try to protect their more vulnerable customers by “reaching out…and offering them a better deal”.
“Winter is just around the corner and with it the need for many Australian households and small businesses to increase their energy consumption at certain times to keep themselves warm, comfortable and healthy,” said Ms Gallagher.
“There are things they can do to lower their bill and resources are available to guide them through it.”
Posted † updated
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