Power bills forecast to soar in Victoria

Power bills in Victoria are tipped to soar, with a new warning that wholesale electricity costs are forecast to double over the next five years even if the state meets its renewable energy targets.

The projection was published in technical documents released by Infrastructure Victoria as part of its draft 30-year strategy.

New modelling has flagged increases to wholesale electricity prices for the rest of the decade.Credit: The Age

They show that two separate consultancies, Aurora and Jacobs, were commissioned to analyse the impact of Victoria’s transition to cleaner energy.

The Aurora report forecasts that even in a scenario in which the state’s renewable energy targets are achieved, wholesale electricity prices would peak in 2030 at more than double this year’s levels, up to an average of nearly $120 per megawatt hour.

This would be driven by the impact of coal plant closures, which could lead to more energy being imported from interstate. However, prices are expected to drop from 2035, once more renewable energy projects and storage come online.

“The closure of coal plants in Victoria, beginning with Yallourn, is expected to significantly increase prices due to a reduced supply of reliable electricity, forcing a greater reliance on more expensive generation sources,” the report says.

Price increases would be even sharper in scenarios where there is a 15 per cent rise in demand, or if transmission projects designed to connect the state to more renewable projects are delayed.

Modelling provided to Infrastructure Victoria forecasting increases in wholesale electricity prices out to the early 2030s.Credit: Infrastructure Victoria

The warning raises the spectre of a debate over power bills before the federal election. In 2022, Prime Minister Anthony Albanese said Labor’s Powering Australia plan would lower bills by $275 by 2025.

Household electricity bills comprise various charges that are passed on to consumers, including costs of running the network. The wholesale price is one of the largest contributors to the total price.

In 2022, the Albanese government placed a temporary cap on soaring coal prices, which were affected by the war in Ukraine, because they were driving up the wholesale cost of electricity and household bills.

The Victorian Default Offer in 2023-24 – a state government-mandated safety net for customers not on more competitive market electricity plans – rose by more than $300 a year for an average household, largely because of these costs.

As wholesale prices weakened over the next 12 months, the typical bill in 2024-25 was $100 cheaper.

Gavin Dufty, national director of energy policy research at welfare group St Vincent de Paul, said it was no surprise that the energy transition would be costly.

“You’re paying for two systems as we move from the old one to the new one … so we’ll be clunky in the transition period,” he said.

“Government resourcing and funding is a way to mitigate those ... impacts. Government needs to, we believe, take some of those cost pressures themselves and put it on consolidated revenue.”

A Victorian government spokesperson said the government was already acting on all of Infrastructure Victoria’s energy recommendations in the draft plan.

“Our plans are focused on driving down Victorians’ energy bills and will deliver the lowest power prices of any scenario,” she said.

“[State Opposition Leader] Brad Battin and the Victorian Liberal Party oppose all the projects that this report says we need to avoid massive price spikes – their plan will result in higher prices for Victorians and lower reliability.”

Energy price trends by the Australian Energy Market Commission forecast residential bills will decline by 9 per cent 10 years from now, when wholesale costs will moderate.

The report by the consultancy Jacobs on behalf of Infrastructure Victoria assessed the risks to the state’s plans to decrease emissions.

It categorised as “likely” scenarios that could create major issues for the energy system, including failures in offshore wind targets, coal plants running longer than expected, gas supply shortfalls and delays to major transmission projects.

Opposition energy spokesman David Davis said it was clear from the report that there were serious risks for Victoria and that all models showed a significant increase in prices.

“It will be a body blow for household budgets under Labor’s plan and body blow for small businesses, who will become increasingly uncompetitive because of Victoria’s high energy costs,” he said.

The Golden Plains wind farm in Victoria.Credit: Eamon Gallagher

In its draft strategy, Infrastructure Victoria calls on the government to expand the use of battery storage to shore up the grid and protect from price shocks.

This includes calls for investment in large-scale batteries, neighbourhood batteries and “virtual power plants”, where swaths of rooftop solar and home batteries are managed together to help respond to peaks and troughs in demand.

Infrastructure Victoria chief executive Jonathan Spear said only one in 10 Victorians were installing batteries when they buy rooftop solar, presenting an opportunity for government to provide incentives.

“The government should continue to facilitate investment in them, prioritising areas where transmission congestion is likely to remain a problem, such as north-west and central Victoria,” he said.

Infrastructure Victoria said the government should continue to build on its plan to remove gas from households.

But it acknowledged gas played a key role supporting the grid and powering commercial users as coal-fired power wound down, and recommended the government secure a reliable supply to prevent shortages from 2027 and increase its targets for renewable gas production.

The authority recommended requiring that household gas space heaters and hot water systems be electrified when they reach the end of their life, similar to a government proposal that has been out to consultation.

Last week, Energy Networks Australia released a submission to that consultation, which argued the proposed electrification timeline in Victoria was being rushed and would cost consumers as electricity distributors were forced to upgrade their networks to meet increased demand.

It represents electricity and gas distribution networks.

Advocacy group Environment Victoria has disputed those findings. Its climate and energy adviser, Dr Kat Lucas-Healey, said electric heating and hot water would reduce energy bills.

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