Price hit looms for household power bills: AGL
The country’s largest electricity generator says the big jump this year in coal and gas costs would inevitably flow through to consumers’ bills.
AGL Energy expects household power bills will rise after a prolonged spike in wholesale electricity prices, presenting a fresh headache for governments already juggling high inflation across the Australian economy.
With wholesale prices accounting for about a third of an average bill, the country’s largest electricity generator said the big jump this year as coal and gas costs have risen and amid big coal generator outages would inevitably flow through to consumers’ bills.
“High wholesale prices have to be reflected in higher retail prices,” AGL chief executive Graeme Hunt said. “How that is done in the way that vulnerable customers are not adversely impacted is a matter that is concerning for the industry, and obviously will be concerning for governments at all levels.”
Wholesale electricity prices jumped by 141 per cent in the March quarter from the same period a year earlier. A series of coal outages spanning Victoria, NSW and Queensland have contributed to pressures with electricity stations including AGL’s Loy Yang A, NSW’s Vales Point and Queensland’s Callide all running below capacity.
A spike in coal and gas prices, exacerbated by tight global markets following Russia’s invasion of Ukraine, have also contributed to tight conditions in the market.
The steep wholesale price rise has sparked calls for the default market offer - which includes a price cap on what retailers can charge customers on standing offers - to be raised to accommodate cost inflation.
Some power companies are arguing a huge spike in wholesale prices means the DMO should be increased to ensure retailers can recoup their costs.
The DMO may rise between 5-10 per cent with new charges to apply from July 1, said Dylan McConnell, a research fellow with the University of Melbourne’s Climate and Energy College.
Still, he points out that competitive market offers between rival retailers will ultimately be a bigger factor for many consumers given only around 10 per cent of customers are on the DMO in some states.
Soaring wholesale costs would invariably see household bills rise, according to Grattan Institute energy analyst Tony Wood.
“Annualised spot prices are double what they were a year ago across the national electricity market and worse in some states. If this was passed through in full, the DMO increase could be higher,” Mr Wood said.
“However, I would suspect it is more likely to be in that 5-10 per cent range and then we may see pressure either up or down in the second half of the year as physical issues are resolved or not.”
Sell & Parker, a scrap metal buyer in Banksmeadow that supplies to BlueScope Steel, told The Australian last week it had to curtail production over the last three days due to huge price volatility for its electricity supplies.
Meanwhile, a NSW magnesium producer, Causmag International, said it was unable to secure contracted gas and is now paying over the odds for both gas and electricity with the risk it will have to shut its doors if current conditions continue.
Power prices surged two-thirds higher in the first quarter of 2022 amid rising fuel costs, coal outages and increased demand in the latest sign of inflationary pressures hitting Australia’s economy, the Australian Energy Market Operator said on April 29.
The Morrison government has a target for wholesale power prices of below $70MWh in 2022 but a trio of market forces have dramatically lifted pressure on the market from a year ago when prices averaged just $36 MWh marking some of the cheapest levels in several years.
Domestic gas prices on the east coast have also soared with the fuel stepping in to fill the gap while international demand for LNG is also squeezing the market.