Price trends

The 2014 price trends review found that residential electricity prices are generally flat or falling around the country and we expect that to continue due to a combination of falling demand, increased competition and tighter rules on network costs.

The AEMC’s price trends report is focussed on the factors driving residential electricity prices over the three years to 2016/17.

The report analyses price trends across the supply chain in each state and territory and consolidates these to provide a national average picture. The report analyses trends in the competitive market sectors of the industry; the regulated networks sector; and resulting from government environmental policies in each state and territory. The factors driving each of the three are different, so understanding price trends involves looking into each individually.

The report is released annually in December and includes details on each state and territory. Individual jurisdictions show different price trends depending on population spread and density, climate, consumption choices, tariff structure, and government policies.

The 2014 price trends review found that residential electricity prices are generally flat or falling around the country and we expect that to continue due to a combination of falling demand and tighter rules on network costs.

The cost of poles and wires is mainly flat or falling under a new, tighter regulatory framework introduced by the AEMC which the Australian Energy Regulator started to apply in 2014.

Electricity prices in both city and regional areas have already fallen in 2014/15 following removal of the carbon tax and we expect them to remain relatively stable, although trends vary across the states and territories due to local factors.

This year’s price trends report reflects substantially lower revenue allowances proposed by the regulator for network businesses, including lower rates of return. “The rules better equip the Australian Energy Regulator to set efficient revenue allowances for network companies so people don’t pay more than necessary for the maintenance and upgrade of poles and wires.

Estimates in the 2014 price trends report for the ACT, New South Wales and Tasmania include the effect of draft determinations made by the regulator under the new rules.

The new rules will be applied to network companies in other National Electricity Market states including Victoria, Queensland and South Australia, in the next round of draft determinations to be made by the AER between July 2015 and January 2016.

The oversupply of generation capacity is also affecting electricity prices. Falling demand is putting downward pressure on wholesale electricity prices over the reporting period, however this trend may not be sustained as the market adjusts to changing conditions and generators exit.

Increased competition in electricity markets was also providing opportunities for consumers to switch electricity providers and save between 7 and 16 per cent on a better deal in states where market offers were available – or $93 to $247 on an annual bill. Consumers are increasingly taking advantage of competition between service providers to shop around and choose a better deal to save on their bills.

Electricity prices set to fall in the ACT over the next two years

The 2014 Residential Electricity Price Trends report shows prices are set to fall by an average annual 4 per cent in the ACT to 2016/17.

Factors which had previously led to price growth in the ACT, including the regulated cost of poles and wires, were now falling.

The cost of supplying electricity has fallen by 7.2 per cent in 2014/15 mainly due to removal of the carbon price, and is expected to fall a further 7 per cent in 2015/16, before increasing by 2.1 per cent in 2016/17.

The main factors driving prices down in the ACT were falling electricity demand and lower network prices.

While the removal of the carbon price has reduced electricity prices in 2014/15, other environmental policies like the Renewable Energy Target and solar feed-in tariff schemes continue to place upward pressure on prices in the ACT. 

Key points

  • Network prices are proposed to fall by an annual average 8.7 per cent to 2016/17 under a new regulatory framework introduced by the AEMC which is now being applied by the Australian Energy Regulator.
  • This year’s price trends report reflects substantially lower revenue allowances proposed by the regulator in their draft determination last month for ACT network businesses.
  • Wholesale and retail costs in the ACT are expected to increase by an annual average 6 per cent in the three years to 2016/17, which offsets some of the gains made in lower network costs.
  • Costs associated with the Renewable Energy Target are set to rise by 4.6 per cent peryear and the cost of the ACT’s feed in tariff policies is expected increase by 31 per cent to 2016/17

 

New South Wales electricity prices set to fall over the next two years

The 2014 Residential Electricity Price Trends report shows prices are set to fall by an average annual 5.8 per cent in New South Wales to 2016/17.

Factors which had previously led to significant price growth in New South Wales, including the cost of the regulated poles and wires, were now falling.

The cost of supplying electricity in New South Wales has fallen by 9.7 per cent in 2014/15 following removal of the carbon price, and is expected to fall a further 11 per cent in 2015/16, before increasing by 2.2 per cent in 2016/17.

The main factor driving prices down in New South Wales was lower costs associated with the regulated poles and wires.

The cost of the regulated network sector is set to fall substantially, including a 25 per cent reduction in distribution network revenues in 2015/16 under a new regulatory framework introduced by the AEMC which is now being applied by the Australian Energy Regulator. Proposed reductions in network revenues are based on the regulator’s draft determination announced in November 2014 which included lower capital and operating expenditure and rates of return than those put forward by New South Wales network businesses.

Key points

  • Competitive market costs are expected to rise by an annual average 3 per cent to 2016/17.
  • Wholesale costs are increasing moderately due to rising gas prices in New South Wales, although this is partly offset by the effect of an oversupply of generation capacity mainly due to lower demand which is putting downward pressure on prices.
  • Increased competition in the New South Wales electricity markets is also providing opportunities for consumers to switch electricity providers and save around 8 per cent on a better market offer – or $165 on their annual bill.
  • Costs associated with the Renewable Energy Target are expected to rise by an annual average 4.6 per cent to 2016/17 in New South Wales.

 

 

Northern Territory electricity prices moderating over the next two years

The 2014 Electricity Price Trends report shows residential prices are expected to increase slightly in the Northern Territory to 2016/17.

The cost of supplying electricity in the Northern Territory is expected to fall by 0.6 per cent in 2014/15 following removal of the carbon price, although this is partly offset by increases in other supply chain components.

Costs are then expected to increase by 3.7 per cent in 2015/16 and 2.5 per cent in 2016/17.

The main factor putting pressure on prices in the coming years is greater expenditure on poles and wires, however residential electricity prices in the Northern Territory are ultimately determined by the Northern Territory Government.

Key points

  • The cost of poles and wires is set to increase by an average annual 7.5 per cent in the Northern Territory to 2016/17, due to greater expenditure on asset condition monitoring and preventative maintenance.
  • Wholesale and retail costs are assumed to increase at below the level of inflation to 2016/17.
  • The Northern Territory Government is undertaking measures to promote retail competition and establish a wholesale electricity market and this may affect wholesale prices in the future.

Wholesale energy purchase costs and retail markets

There is no wholesale market in operation in the Northern Territory. The purchase of wholesale energy from the Northern Territory Power and Water Corporation is via bilateral contracts.

Wholesale energy purchase costs currently make up 63 per cent of the representative standing offer price. From 2013/14, we assumed that wholesale energy purchase costs increase at the rate of inflation.

Prices are expected to increase by 6.9 per cent a year on average between
2012/13 and 2015/16

Residential electricity prices are currently regulated by the Northern Territory government and electricity prices are provided through electricity pricing orders.

Electricity price trends in Queensland

The 2014 Residential Electricity Price Trends report shows electricity prices in Queensland could increase by an annual average 3.2 per cent to 2016/17.

Overall, the cost of supplying electricity in Queensland has fallen by around 1 per cent in 2014/15. This fall was mainly due to the removal of the carbon price, which was largely offset by increases in network prices and the cost of the Solar Bonus Scheme.

The AEMC price trends report is a snapshot in time. It is based on publicly available information at the time of developing the report. We expect actual price movements to vary in response to decisions due to be made by both by the Queensland Government and theAustralian Energy Regulator.

Future drivers of Queensland electricity prices will be affected by the:

- Australian Energy Regulator decisions on proposed future network revenue allowances (October 2015)

- Any decision by the Queensland Government on how the cost of the state’s Solar Bonus Scheme will be recovered.

Key points

  • Based on public information currently available, price rises in future years are mainly driven by the Solar Bonus Scheme which now accounts for 8.7 per cent of total bills, in addition to proposed network investments for replacement of ageing infrastructure.
  • New rules made by the AEMC are being applied progressively across the nation by the Australian Energy Regulator to set efficient revenue allowances for regulated network companies so people don’t pay more than necessary for poles and wires. Allowed revenues for network businesses are now set using the expenditure required by prudent, efficient operators as a benchmark.
  • In October 2015, the AER is due to release its final determination on Queensland network revenue allowances under the new rules and the expected prices for 2015/16 and 2016/17 will be clearer once this is available.
  • Wholesale costs in Queensland are expected to increase moderately in the three years to 2016/17, partly driven by higher gas prices following the establishment of a liquefied natural gas industry on the east coast.

 

Electricity prices falling in South Australia over the next two years

The 2014 Residential Electricity Price Trends report shows prices in South Australia are expected to fall next year and remain flat in 2016/17.

The cost of supplying electricity has fallen by around 3.9 per cent this year mainly due to the removal of the carbon price, although this is partly offset by increases in other supply chain components. Prices are expected to decrease a further 3.5 per cent in 2015/16, before remaining steady in 2016/17.

The main factor driving prices down in South Australia was lower wholesale electricity prices resulting from an oversupply of generation capacity.

Key points

  • Competitive market costs are expected to fall by an annual average 4.7 per cent in South Australia to 2016/17, driven by an oversupply of generation capacity as a result of falling electricity consumption and growth in generation subsidised under the Renewable Energy Target. This expected fall in wholesale prices may reverse in the future if these conditions lead to thermal generators exiting the wholesale market.
  • There is a moderation in network prices in South Australia which are anticipated to increase at an annual average 3.5 per cent to 2016/17.
  • The regulated rate of return which drove previous network cost increases is falling with changed financial market conditions, and new rules made by the AEMC would be applied from mid-2015 to proposals for future revenue allowances for network businesses.
  • Network prices for 2015/16 and 2016/17 will depend on the regulator’s final determination under the new rules.


 

Electricity prices moderating in Tasmania over the next two years

The 2014 Residential Electricity Price Trends report shows prices in Tasmania are set to fall in 2014/15 and 2015/16.

Overall, the cost of supplying electricity in Tasmania has fallen by 10.3 per cent in 2014/15 mainly due to the removal of the carbon price, and is expected to decrease by a further 0.7 per cent in 2015/16, before increasing by 2.3 per cent in 2016/17.

Key points

  • Network prices are expected to increase by an annual average one per cent in Tasmania to 2016/17 – less than inflation – under a new regulatory framework introduced by the AEMC which is now being applied by the Australian Energy Regulator.
  • This year’s price trends report reflects lower operational and capital expenditure allowances proposed by the regulator in their draft determination last month for Tasmania’s transmission network business and lower rates of return. A final determination for the distribution network business is due in April 2017.
  • Wholesale and retail costs are also expected fall in Tasmania by an annual average 1.9 per cent in the three years to 2016/17, which reflects an oversupply of generation capacity.
  • The removal of the carbon price has reduced electricity prices in 2014/15, however other environmental policies like the Renewable Energy Target and solar feed-in tariff schemes continue to place upward pressure on prices in Tasmania. 

Wholsale energy purchase costs and retail markets:

  • Wholesale and retail market costs include wholesale energy purchase costs and the costs of the retail sale of electricity. They currently make up around 49 per cent of the average standing offer residential electricity price.
  • Trends for this component in Tasmania are based on the Office of the Tasmanian Economic Regulator (OTTER) price determinations made in July 2013.
  • Based on OTTER’s July 2013 Retail Price Determination, our reports shows that wholesale energy purchase costs decrease, while retail costs increase on average by around 13.5 per cent a year from 2012/13 to 2015/16.

Electricity prices set to moderate in Victoria over the next two years

The 2014 Residential Electricity Price Trends report shows prices are expected to increase moderately over the next two years in Victoria.

“The cost of supplying electricity has fallen by around 5.5 per cent this year mainly due to the removal of the carbon price, although this is partly offset by rises in other supply chain components. Price increases in the next two years are expected to be below inflation.

Main factors affecting prices in Victoria were falling electricity demand and moderate increases in regulated network costs.

Wholesale electricity costs are expected to fall slightly, driven by an oversupply of generation capacity due to falling demand. Network prices are expected to increase at an annual average 4.2 per cent over the reporting period, reflecting revenue allowances approved for network companies prior to the recent network regulation rule changes.

Key points

  • New rules made by the AEMC will be applied in Victoria from January 2016, which better equip the regulator to set efficient revenue allowances for network companies so people don’t pay more than necessary for the maintenance and upgrade of the poles and wires.
  • Removal of the carbon price has reduced electricity prices in 2014/15, however other environmental policies like the Renewable Energy Target continue to place upward pressure on prices in Victoria. Costs associated with the Renewable Energy Target are set to rise by an annual average 4.6 per cent to 2016/17.
  • Strong retail competition in Victoria meant there were a diverse range of electricity offers available to consumers with opportunities to shop around and save on a better deal.
  • Victorians could save an average 16 per cent in 2013/14 by switching electricity providers to save on a better deal – or around $246 on their annual bill.

 

 

Electricity price trends in Western Australian

The 2014 Electricity Price Trends report shows residential prices are expected to increase in Western Australia to 2016/17.

The cost of supplying electricity in Western Australia has fallen by 4.1 per cent in 2014/15 following removal of the carbon price, and is expected to increase by 7 per cent each year in 2015/16 and 2016/17.

Total electricity costs are mainly being driven by the cost of expanding the electricity network in Western Australia, but prices are ultimately determined by the Western Australian Government.

Key points

  • Residential electricity prices are subsidised by the Western Australian Government, meaning the price paid by residential customers is lower than the cost of supplying them with electricity. The trends identified in this report indicate a move towards greater cost reflectivity, however it is estimated that residential prices would have to increase by around 30 per cent for the price to reflect the full cost of supply.
  • Main factors affecting the cost of supplying electricity in Western Australia were increases in network prices, as well as wholesale and retail costs.
  • The cost of poles and wires is set to increase by an average annual 5.8 per cent in Western Australia to 2016/17, mainly due to growth in the size of the network.
  • Wholesale and retail costs are expected to rise at slightly above inflation – around 2.9 per cent – although these costs may be impacted by reforms resulting from the Western Australian Government’s electricity market review.
  • Removal of the carbon price has reduced electricity prices in 2014/15, however other environmental policies like the Renewable Energy Target continue to impact prices. Costs associated with the Renewable Energy Target are expected to rise by an annual average 4.8 per cent to 2016/17 in Western Australia.