Hope for relief from spiking electricity bills rise as the wholesale price tumbles

The cost of producing electricity fell by as much as 64 per cent during 2023 and may begin to flow through to households.

The cost of producing electricity during 2023 fell as much as 64 per cent in a year, the country’s energy regulator has revealed.

The data raises speculation that power bills could begin to ease amid a cost of living crisis that has stoked inflation and sapped support for the federal government.

The Australian Energy Regulator (AER) said wholesale electricity prices in the National Electricity Market (NEM) fell by between 44 per cent and 64 per cent from the record levels seen in 2022 and were now closer to longer-term annual averages.

The decline comes as a global energy crunch subsides and Australia experiences relatively benign weather that has moderated demand for electricity, the AER said.

Wholesale electricity prices are a major component for determining the next default market tariffs beginning on July 1. Australian households and businesses have endured two consecutive years of price rises of more than 20 per cent, during which a record number of people were unable to pay their bills.

The default offer sets a price cap on how much energy ­retailers can charge consumers.

It is calculated annually, and the AER considers the wholesale cost of electricity, the toll of transporting electricity and the cost of compliance with government rules and regulations.

The AER will in March publish its draft ruling, and it hinted some relief could be on the way.

“Once retailers’ wholesale costs adjust to the lower prices going forward, prices faced by consumers should reflect these lower costs,” the AER said in a statement.

AER board member Jarrod Ball cautioned that the high wholesale costs remained in the portfolio of some retailers – as companies often sign multi-year deals for electricity to service their customers – tempering hopes of substantial falls in bills.

“We tend to see a lag between wholesale prices and those faced by consumers and that’s really because many retailers purchase big contracts at times when forward prices are significantly higher than they are now,” Mr Ball told The Australian.

He said high wholesale prices such as those incurred in 2021 when Russia’s invasion of Ukraine up-ended the global gas and coal markets and Australia suffered a spate of outages, typically influence calculations of the default market offer for up to three years.

Still any bill relief will be welcomed and federal Energy Minister Chris Bowen seized on the data as evidence that the government’s energy transition plan was working.

“This report again confirms that government policy and record levels of cheap renewable power are contributing to much lower wholesale prices, which ultimately flow through to consumer bills,” Mr Bowen said.

“The Albanese Government is rolling out real plans to connect more renewables and storage into the grid, making sure Australians get the cheapest, most reliable and cleanest energy.

“In contrast, the LNP wants to pause the renewable rollout, and has no alternative plan to ensure reliability or affordability – just a dangerous gamble on unproven and expensive nuclear technology.”

Mr Bowen highlighted record high quarterly generation from wind and solar during the three months ended December 31, up from the previous peak of 23 per cent one year earlier.

With ever higher renewable energy generation, Australia’s dependency on fossil fuels continues to wane. The AER said the proportion of electricity output sourced from coal and gas fell to a record low of 66 per cent during the fourth quarter of 2023, down from 67 per cent in the previous three month period.

Originally published as Hope for relief from spiking electricity bills rise as the wholesale price tumbles