AER says energy cost slug is still on the way despite a quarterly wholesale price fall
The AER said there had been greater supply of low-priced capacity offered into the market, particularly by black coal but also by gas and solar generators.
Wholesale electricity and gas prices fell in the first quarter of 2023 but the Australian Energy Regulator says it doesn’t expect any major changes to the jump in power bills which will hit from the start of July.
Average national electricity market prices over the first three months of this year were lower than the preceding quarter across most regions and ranged from $64 per megawatt hour in Victoria to $114/MWh in Queensland.
The AER attributed this to greater supply of low-priced capacity offered into the market, particularly by black coal but also by gas and solar generators.
Still, it cautioned that the looming shutdown of AGL Energy’s Liddell coal-fired power station in NSW at the end of April “will tighten the supply-demand balance, especially in evening periods when solar output is low”.
The impending closure has triggered concern from some quarters over the supply outlook for the broader system as Liddell produced 10 per cent of NSW grid demand in the past year – although this has fallen to 5-6 per cent at times of peak demand.
Large-scale solar output achieved a quarterly record and was up 22 per cent on a year earlier, accounting for 9 per cent of the total generation mix in the quarter. Rooftop solar output also hit a record.
East coast gas spot market prices dropped and averaged below a mandated cap of $12 per gigajoule thanks to additional supply through spot markets due to outages from the Queensland LNG exporters and amid a broader fall in international prices following the Russia-Ukraine commodity shock of 2022.
Still, hopes of a major change to a looming bill slug were watered down by the regulator. In March it issued a draft ruling saying households would face annual power bills jumping by hundreds of dollars and increases of at least 20 per cent on standing offers were expected from the start of July.
The AER is now finalising the default market offer, but said it does not expect a major change from the draft decision.
“We continue to closely monitor electricity forward contract prices given their relationship to wholesale costs incurred by retailers and the impact it can have on the final Default Market Offer (DMO) price,” AER chair Clare Savage said.
“At this stage, the late quarter increase in base futures prices does not appear to be having an impact on likely DMO outcomes but we will continue to monitor contract prices ahead of releasing our final DMO determination” set for May 28.
The default market offer predicts residential customers on standard retail plans could face price increases of 19.5 per cent to 23.7 per cent, while small business customers face a rise of 14.7 per cent to 25.4 per cent depending on their region.
Some 600,000 households are still on the DMO in NSW, southeast Queensland and South Australia, and the rise will add to the pain of 10 successive interest rate rises and record inflation.
The 12-month price cap on gas appears to be influencing forward trade over winter months, according to the AER.
“We have observed recent forward trades suggesting that gas covered by the
price cap is being traded over winter months at $12/GJ, where exempt forward trade over the
same period is trading at prices above the cap,” the AER said.
“Holding other factors constant, this suggests that the cap is imposing downward pressure on the trade to which it applies.
“It may also suggest that the volume of gas offered under the cap over winter is not yet sufficient to meet demand, so buyers are opting to purchase further gas through exempt trade at prices over the $12/GJ cap.”