Victoria and Western Australia had already been delivered bad news on electricity prices. New South Wales, South Australia and South-East Queensland received theirs yesterday.
Just to briefly recap, last week Western Australians were told electricity prices would rise (again), harshing some of the buzz provided by the McGowan Government’s recently announced Household Electricity Credit.
Then on Tuesday this week, Victoria’s Essential Services Commission announced it had set that state’s Default Offer (VDO) prices to apply from 1 July 2022 to 30 June 2023. Average annual bills for households and small businesses on that offer will increase by around 5 per cent; with impact varying depending on the distribution area.
What Is A Default Market Offer?
A Default Market Offer (DMO, aka a Standing Offer) are contracts electricity retailers must make available to residential and small business customers who don’t opt for a market offer. It’s a safety net of sorts, ensuring those who overlooked, are too confused, or haven’t taken the time to select what may be a better offer from the retailer aren’t ripped off – too much.
The DMO is meant to allow retailers to recover their costs and make a profit, while encouraging competition for better deals under market offers. So, basically it sets the stage for electricity pricing and when the DMO goes up, it’s likely market offers will also get pricier.
Enter The Grim Reaper Australian Energy Regulator
Each year, the Australian Energy Regulator (AER) sets the Default Market Offer for the following financial year in New South Wales, South Australia and South-East Queensland. It usually releases its final determination on May 1, but was given extra time this year by the then-Morrison Government to get things in order.
We’re told this had absolutely nothing to do with the writing being on the wall regarding rising electricity prices and the then-Morrison Government wanting to put off the bad news until after the Federal Election. The hand grenade was dropped yesterday, leaving the newly-elected Labor Government to cop the blast.
In summary, here’s what’s happening from 1 July 2022 to the DMO in SA, NSW and SE-QLD. These are % changes in nominal terms (without removing expected inflation).
- South Australia – residential: increase of between 7.2% and 9.5%, small business: 5.7% increase.
- South-East Queensland – residential: increase of between 11.3% and 12.6%1, small business: 12.8% increase.
- New South Wales (depending on distribution area) – residential: increase of between 8.5% and 18.3%, small business: 10% to 19.7% increase.
Just on the power bill increases for business, the AER notes DMO 4 prices are not directly comparable with DMO 3 prices due to a new usage benchmark (10,000 kWh annual usage), but the figures are comparisons using that benchmark (20,000 kWh annual usage).
Whichever end of the scale a household or business finds itself on, it’s a significant added cost; piling hundreds of dollars more onto annual power bills for many families. Many businesses will also struggle with paying thousands more.
Why Are Electricity Prices Increasing?
General inflation is playing a big part, but the Regulator also points to significant rises in wholesale electricity costs over the past year caused by:
- reductions in thermal (fossil fuel based) generation resulting from unplanned outages
- higher coal and gas prices due to global instability
- slowing of investment in new capacity
- increasingly ‘peaky’ demand (sharp highs and lows)
Shop Around, Go Solar
AER Chair Clare Savage said it is now especially important electricity customers contact their retailers to ensure they are on the best energy plan for their individual circumstances. The AER recommends the use of the Australian Government’s Energy Made Easy website, which enables an easier comparison of an electricity retailer’s plans – and with those of other retailers.
Installing solar panels will also become more appealing for many Australians as this is a slam-dunk way to reduce power bills if you have a suitable rooftop2. Millions of Australian households and businesses are already harvesting solar energy from their rooftops, not only slashing their electricity costs but also emissions.
SolarQuotes can help out here with founder Finn Peacock’s detailed plain-English guides that will coach you on everything you should know about understanding, buying and owning a home solar power system. Finn also has a special guide focusing on commercial solar.
And of course, there’s SQ’s very popular free quoting service that has been used by hundreds of thousands of Australians; backed by the SolarQuotes Good Installer Guarantee.
The full AER default market offer prices 2022–23 final determination can be viewed here.
Footnotes
- Shortly after the increase was announced, the Palaszczuk Government said Queenslanders will receive a $175 Cost of Living Rebate on their next power bill. Certainly helpful, but a band-aid if prices stay high. ↩
- Try out SQ’s solar calculator to see estimated solar savings and payback in your circumstances. ↩
About Michael Bloch
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Thanks for this article. If the DMO effectively provides a cap on my annual bill, can you help me to understand the financial benefit of having solar.
I assume the DMO is not an absolute maximum annual cost, but is dependent on annual kWh usage. If this is the case, does this exclude electricity I generate from my solar and either use or feed back into the network?
The DMO is based on a “standard” consumption level and zero solar PV.
As a means to assess what your individual bill impact would be, it’s entirely useless.
The only way to do that with any reliability is to navigate your way through the multitude of retail plan offers and to calculate how they apply to your specific consumption and, if you have solar PV, production patterns.
There are various online tools to help, including the Energy Made Easy website, but unfortunately all the comparison websites (including this website’s own version) are no more than rough guides because the terms and conditions of most tariff plans do not neatly fit into a plan structure used to calculate the bill estimates.
e.g. when I use Energy Made Easy, the estimated bill for 7 of the top 10 plans suggested is wrong by a LOT, simply because of the T&Cs of those plans are not accounted for. Variable feed in tariffs, export limits, different TOU periods, demand tariffs, stepped import rates etc etc.
Good luck navigating through it all.
There’s an interesting piece here: https://www.news.com.au/finance/economy/australian-economy/reason-china-is-getting-aussie-gas-cheaper-than-australians/news-story/6f09e40a5028688ae2e5ae50bc7d1977
Australia usually pays $3 per gigajoule (Gj). Currently Australians are paying $35/Gj – the same as Europe which has no gas and imports from rogue state Russia, yet China is only paying $31/Gj. Why the disparity? The east coast gas export cartel has artificially created scarcity by ‘flooding’ the Chinese market whilst shorting the local. It appears they don’t pay tax on Chinese exports so may make greater profits. (I confess I don’t follow this point in the article).
Why is this significant, especially given the push for people to switch from gas in their homes to electricity? Because gas-fired power stations set the marginal cost for power. If they’re paying 12x the normal rate for gas, electricity prices will naturally soar.
Government already has a lever to force prices back to normality – the Australian Domestic Gas Reservation Mechanism. This would force the cartel “… to leave more gas here so that the local price crashes to acceptable prices around $7Gj”. (WA already has a domestic gas reservation policy and pays less than $6/Gj!)
Labor admits electricity prices “… are the pointy end of the cost-of-living crisis” but refuses to act against this fundamental driver. Why? Is it possible Labor views unaffordable electricity as a good thing – akin to America’s runaway ‘gas’ (petrol) prices, as it bolsters the argument for EVs and solar panels – despite the fact that many households simply cannot benefit from such?
(Yes ScoMo should have jumped on this before the election so no credit there either, but it is the Aussie battler that suffers, not those in teal seats.)
If Australia reduces its exports then the cost of imports will rise. Australians will have cheaper gas but pay more for shoes, soap, books, mobile phones, etc. There’s no easy win. The trick is to reduce gas consumption. Fortunately, that’s not too difficult to do here. An air sourced reverse cycle air conditioner is effective in Australia’s climate and can heat a home cheaper than gas. Much cheaper if solar is used during the day.
George Kaplan,
“Australia usually pays $3 per gigajoule (Gj).”
Not since before LNG exports began in late 2014 from Queensland’s Curtis LNG Terminal.
https://www.gem.wiki/Queensland_Curtis_LNG_Terminal
The Australian Energy Regulator wholesale gas prices chart shows east coast gas prices rose sharply from 2014/15.
https://www.aer.gov.au/wholesale-markets/wholesale-statistics/gas-market-prices
“Government already has a lever to force prices back to normality – the Australian Domestic Gas Reservation Mechanism.”
There’s a better, cheaper, cleaner alternative to gas – switch to all-electric.
See Bruce Robertson’s analysis of the Australian gas market, dated 1 Jul 2021 at: https://ieefa.org/resources/gas-demand-dying-under-weight-nose-bleed-prices
See also The Big Switch with Saul Griffith at: https://australiainstitute.org.au/event/the-big-switch-with-saul-griffith/
Does this mean itll be almost worthwhile to get a battery based on cost alone in NSW or am i right in assuming we’re not going to be quite there yet?
It does not look like a battery will pay for itself yet in NSW. Perhaps it’s possible if if your electricity consumption is high enough and you find a VPP that suits you. (A lot of VPPs are going to really be raking in money at the moment, so its possible deals will improve.)