Budget 2022: Power bills – the worst is yet to come
Households face a new cost-of-living crisis with electricity and gas bills to soar, derailing the government’s election promise for a $275 cut to power bills by 2025.
Households face a new cost-of-living crisis with electricity and gas bills to soar by hundreds of dollars a year, derailing the Albanese government’s election promise for a $275 cut to power bills by 2025, government forecasts show.
Treasury predicts retail electricity prices will jump 30 per cent in 2023-24, eclipsing a 20 per cent rise in the average household power bill in the current financial year.
Gas and electricity bills are also projected to add three-quarters of a percentage point to inflation this financial year, and a further 1 per cent in 2023-24.
Gas consumers also face a big financial hit, with tariffs expected to increase by 20 per cent this year and in 2023-24 due to an ongoing supply crunch on the nation’s east coast and near-record LNG prices filtering through to the local market following Russia’s invasion of Ukraine.
“Given forward wholesale contract prices for electricity remain elevated, retail electricity prices are expected to rise by a further 30 per cent in 2023–24. Higher electricity prices will have both a direct and indirect impact on inflation, increasing input costs across the consumer price index basket,” the budget papers say.
Soaring energy inflation looks set to sink the Albanese government’s election promise for a $275 cut to power bills by 2025, a central plank of its Powering Australian plan.
Labor pointed to its long-term goal boosting renewables generation and electricity transmission as a move that would dampen price pressures, but held off providing a specific year for household energy costs to ease.
“Commonwealth and state government actions to accelerate the uptake of renewables and modernise the grid are expected to put downward pressure on wholesale electricity prices over time,” Treasury said.
Power and gas prices have soared in Australia this year, with the surge linked to international factors such as the war in Ukraine, a global gas crunch and Australia’s reliance on old coal-fired power stations, two-thirds of which may be shut by 2030.
“Globally, retail electricity and gas prices have risen considerably as increases in wholesale energy costs flow through to consumers,” the budget papers say.
“Domestically, wholesale electricity and gas prices have also risen sharply since early 2022, reflecting higher global prices as well as temporary domestic electricity market disruptions exacerbated by ageing generation assets and inadequate policy certainty to support investment in new energy infrastructure.”
A delay in the pass-through of wholesale costs had shielded households from some immediate price pain, but retailers are expected to hike prices considerably when annual bills are reset next year. Power giants including Alinta Energy and Origin Energy this month estimated retail prices could rise by up to 35 per cent given high wholesale futures prices into 2023.
“These pressures are yet to fully flow through to higher consumer prices because electricity retailers typically contract wholesale electricity several years ahead, which has provided a significant buffer through the recent market disruption,” Treasury said.
“This rise in wholesale electricity and gas prices can be expected to flow through to higher consumer prices as wholesale contracts are renewed.”
Australia will experience its first cluster of coal generation requirements when five power stations close this decade, totalling 8.3 gigawatts and equal to about 14 per cent of the market’s entire capacity. The exit from coal-fired generation requires triple present levels of hydro, gas and batteries to replace fossil fuel by 2050.