Households face sharp electricity price rise without urgent action, key agency warns

The Australian Energy Market Commission has warned households face a 13 per cent electricity price jump early next decade without faster renewable rollouts.

Australia must urgently develop new sources of renewables to avoid price rises. Picture: iStock

Households could face a 13 per cent jump in electricity prices early next decade unless the rollouts of renewable energy, battery storage and transmission are accelerated, the country’s energy market rule maker has warned.

The Australian Energy Market Commission said it expected a decline in residential electricity prices between 2025 and 2030 if the transition proceeded along official estimates. But it warned that the transition depended on a “critical five-year window” in which the pace of renewable generation and battery deployment must keep ahead of rising demand and the retirement of ageing coal plants.

The AEMC, which helps run and shape electricity and gas markets through rule-making, market design and long-term policy advice, said “accelerating the build-out of renewable generation, transmission and battery storage is essential to keep residential electricity prices affordable over the next decade”.

The report’s base case shows residential electricity per-unit prices “will fall by around 5 per cent over the next five years, supported by new renewable generation growth”, before climbing sharply as supply tightens. On average, prices are projected “to rise by 0.8 per cent per year over 10 years”.

AEMC chair Anna Collyer said the report marked an “urgent” call for action. “Our price outlook highlights a critical five-year window: residential electricity prices are projected to fall through 2030 as renewable generation and batteries ramp up, but then rise through 2035 if the pace of new investment doesn’t keep ahead of growing electricity demand and planned coal retirement,” Ms Collyer said.

She said the analysis “clearly shows renewable energy and batteries drives prices down,” with the risk of rising prices emerging “if we slow down renewable deployment as coal plants retire”.

The commission stressed the outlook was not fixed. “There is still time to act to avoid a price rise through a faster renewable build-out, more flexible demand, co-ordinated use of CER, and increased network utilisation.”

But the findings will intensify pressure on the federal government, which is under mounting scrutiny to deliver its signature energy transition. Labor has insisted its plan to supply 82 per cent of the country’s electricity from renewable sources is on track, and the AEMC’s near-term analysis will be a welcome boost.

Beyond 2030, however, the challenge deepens. Much of the near-term gains are coming from the retirement of coal power stations nearing the end of their technical lives. While Australia has seen sustained growth in large-scale and household batteries and leads the world in rooftop solar adoption rates, wind developments have stalled amid rising construction costs, and transmission lines are struggling to win community support.

Delays in these two areas alone, the AEMC said, could increase annual household electricity prices “as much as 20 per cent.”

Wind is widely considered the missing link in Australia’s energy transition. Its generation peaks when solar power ebbs, but the rising costs of construction mean no single development has reached financial close in months. Without wind, the AEMC said, Australia risked insufficient renewable energy capacity, leaving the system exposed to price spikes because “reduced wind generation increases reliance on more expensive gas generation in evening peaks”.

Poorly co-ordinated consumer energy resources, such as electric vehicles charging at the wrong times, add further strain. The AEMC modelled a scenario where EV charging occurs exclusively during evening peaks, finding this “increased evening wholesale prices” and raised network costs, because uncoordinated CER “would increase the need for network investment to support an additional ‘peak’ load.”

The AEMC also warned extending the life of ageing coal units was no solution, with “increased outages potentially adding up to 5 per cent to prices”.

Energy Minister Chris Bowen seized on the impact of coal extensions to attack the notion of extending coal – as proposed by the Coalition.

“The AEMC makes clear [that] slowing the renewables rollout and sweating ageing, unreliable coal will drive up energy bills and pollution. Yet this is exactly what the Coalition’s anti-renewables plan is designed to do,” said Mr Bowen.

“It’s simple: when coal breaks down, your bills go up – that’s why we’ve got to keep rolling out reliable renewables, and help more households embrace solar and batteries,” he said.

“The Coalition’s anti-renewables plan will cost Australians more.”

Conversely, faster construction of renewables, grid batteries and transmission could ease pressure. The commission finds that “faster wind and transmission delivery could reduce prices by up to 10 per cent,” while a faster uptake of household batteries “can reduce electricity costs for all households by up to 3 per cent annually”.

Despite the projected increase in per-unit electricity prices, household electricity bills themselves may not rise. The AEMC notes that “average household electricity costs are projected to remain stable”, as improved energy efficiency and rooftop solar uptake more than offsets increased demand from gas switching and EV charging.

Electrification is central to long-term household savings. The AEMC’s modelling finds that electrifying gas appliances delivers an “approximate 60 per cent reduction in heating and cooking costs”, while switching to an electric vehicle provides an “approximate 40 per cent reduction in annual vehicle running costs”.

Household solar can save “approximately $1000 to $1200 per year,” and adding a battery delivers an “additional $600 to $900 per year in savings”.

“A household that fully electrifies could reduce total energy costs by up to 90 per cent, with typical payback periods of four years,” Ms Collyer said.

Originally published as Households face sharp electricity price rise without urgent action, key agency warns