Australian Energy Regulator finds big drop in electricity wholesale prices

Consumers should expect electricity bills to finally start to fall after more wind and solar drove competition and cut generation prices.

The spot price of electricity in South Australia plunged by up to 40 per cent last financial year, a major report has found.

The fall will be good news for households, although it will take time to flow through to consumer bills.

“We expect electricity retailers will pass on savings from these cheaper wholesale prices to consumers,” Australian Energy Regulator chair Clare Savage said.

The regulator’s report, being published on Monday, found prices in 2019-20 across the national electricity market had dropped back to 2014-15 levels below $85 per megawatt hour.

SA, which had the highest prices the previous three years, fell by the most, becoming cheaper than Victoria and NSW.

Wholesale costs make up about a third of the final retail price paid by households.

The regulator said it was difficult to separate the impact on bills of wholesale price

changes because there was “little visibility” on commercial contracts.

However, lower prices eventually flow through, with forward contracts on the market already falling.

Australian Energy Regulator chair Clare Savage.

“The market is changing and different trends in competition are emerging,” Ms Savage said. . “The growth in renewables, particularly solar, is increasing competition in the middle of the day

“However in the evening peaks the role of flexible generation, such as hydro, is becoming more important in driving market outcomes.

“The role of flexible generation and battery storage will become even more crucial in future as more renewable generation connects to the grid and the AER will monitor these markets closely.

“While wholesale prices are lower, they are still at a level to encourage new investment in a range of generation technologies but most new investment has been supported by governments.”

Energy and Emissions Reduction Minister Angus Taylor welcomed the lower pricing.

“The AER highlights that generators are changing their bidding behaviour in line with falling input costs,” he said.

“This is exactly the behaviour that we want to see, as energy companies must put customers first by passing on cost reductions.”

The report found a few big companies still dominate the market, but new generators, mostly wind and solar, had increased competition. Extremely high prices were due to weather rather than using market dominance to rort the market.

In SA, two companies – AGL and Engie – have about half the market.

Competition increased in SA with big companies which are both generators and retailers lost market share. SA was the only state this occurred.

The regulator was concerned by increases in prices in the national electricity market for frequency control ancillary services – which help maintain the grid stability.

The Hornsdale Power Reserve big battery at Jamestown, owned by Neoen.

It noted the big Tesla battery array in Jamestown had gained considerable market share in SA for battery owner Neoen in the ancillary market.

However it said Neoen “generally offered in at lower prices than its competitors”.

The regulator said the investment environment was challenging with uncertainty over technology, the exit path of big generators and he future of energy-intensive industries.

Originally published as Australian Energy Regulator finds big drop in electricity wholesale prices