Australia's wholesale energy price problem is already in its sixth month as of October. Large increases in retail electricity prices are becoming inevitable in the eastern states (from July 2023). These could cost more per kilowatt-hour than 10 cents.
This post includes a brief update on the present situation and a whiny section.
A six-point summary of the current crisis is provided below.
Putin made the decision to invade Ukraine on February 20 in order to end the threat that Russia would refrain from doing so.
The price of natural gas on the east coast increased since it is traded internationally.
Because gas is a "price setter" in our electrical market, wholesale power prices increased even though Australia only generated 8.4% of its electricity from natural gas during the most recent fiscal year.
Even though it provides 43.8% of Australia's electricity1, the price increase for black coal had a significantly less impact on wholesale prices than the rise in gas costs.
Although the price of natural gas on the east coast has decreased from extraordinary levels at the end of July, it is still significantly higher than average.
Although the situation should get better as spring approaches and solar energy output rises, the crisis might not be resolved until the end of the European War.
Affected Only Are Eastern States
Only the eastern states were impacted by the issue in wholesale prices. So far, two territories and one state are unaffected:
Western Australia is doing well because it keeps some of its gas output for home consumption and doesn't export its subpar coal.
Long-term gas contracts protect NT consumers.
Since ACT electricity is entirely renewable and its pricing are mostly determined by long-term contracts, it gets off easy.
huge increases in retail electricity prices Prices for Likely Wholesale electricity rose in April, shot through the ceiling in May, June, and July, and then started to decline.
Although there wasn't much of a decline in September, I was hoping they would. Due to domestic gas costs being approximately $20 per gigajoule—roughly twice what they were a year ago—that is most likely the cause.
The figures indicate that when the retail electricity prices are adjusted in July 2023, we're on pace for a significant increase.
In order to determine the maximum growth, I determined three things:
the typical wholesale price for the period of May 2021 to April 2022. The time frame that mostly defines today's retail prices is this one.
the wholesale cost on average for August and September 2022.
the main distinction between the two. This will be my projection of the rate of growth in wholesale power market prices for the time frame used to determine the rise in energy prices in July 2023.
Wholesale Market Prices for 2021–2022.
It is simple to collect historical wholesale market pricing from the beginning of May 2021 to the end of April 2022 from the AEMO. The average wholesale energy market rates for the five eastern states were as follows:
- 9.6 cents/kWh in NSW
- QLD: 12.8 cents per kWh
- 6.6 cents/kWh for SA
- 5.2 cents/kWh for TAS
- 6.1 cents/kWh in VIC
Wholesale Market Prices Anticipated
The period from May 2022 to April 2023 will roughly serve as the basis for electricity price increases in July of the following year. Since I am, regrettably, unsure of the wholesale market prices for the foreseeable future, I have assumed that they will be, on average, what they were in August and September. Here is a graph showing what wholesale market pricing will be like if they continue the established pattern.
The average wholesale market price that influences the retail price of energy for the following year will be:
- kWh in NSW: 20.6 cents
- QLD: 20.4 cents per kWh
- 20.4 cents/kWh in SA
- 17.6 cents/kWh for TAS
- 16 cents/kWh in VIC
Growing Wholesale Market
The wholesale price increases we can anticipate for the following year are calculated by deducting wholesale market prices for 2021–2022 from my estimated future pricing:
- +11.1 cents/kWh in NSW
- Queensland: 7.6 cents/kWh
- SA: +13.8% of kWh
- +12.4 cents/kWh for TAS
- 9.9 cents/kWh in VIC
I predict that these increases will decide the retail price of electricity for the following year.
Retail Price Rises Need to Be Lower
Retail energy price hikes in July shouldn't be as frightening for two reasons, notwithstanding the likelihood of substantial wholesale market price increases.
As the state of the world appears to be improving, lower prices for coal and natural gas could result in lower wholesale energy costs. But keep in mind that there is also a possibility—very slim, in my opinion—that things may go significantly worse.
The majority of power is traded under long-term contracts with no public knowledge of rates rather than on wholesale marketplaces. It's possible that energy dealers did a good job at their job and secured enormous amounts of electrical energy at prices below wholesale market rates. If this is the case, price rises for energy won't be as severe as implied by wholesale market prices. However, there's a chance that enough traders made such terrible mistakes that the entire price increase will be greater than what wholesale markets predict. Although it is highly unusual, the fact that some small electrical retailers failed as a result of the price issue demonstrates that not everyone predicted the situation correctly.
I have hope that electricity costs won't increase as much as the wholesale market rates indicate. But come July 2023, I advise preparing for an increase of at least 5 cents per kilowatt-hour. It would be wise to add solar panels right away or increase current capacity.
Although home batteries are far from being a certain way to save money for normal households, individuals who are on the fence about getting them might choose to do so because of the added security and independence they offer.
Increased Solar Feed-In Tariffs
The news that feed-in tariffs would rise in July along with electricity costs will be welcome news to those who have solar power systems. These won't likely climb in lockstep with grid electricity rates because they will be based on daytime wholesale prices rather than the overall increase. But I do anticipate significant increases.
Pricing for electricity has to be more flexible.
Australia's citizens need to have begun to act immediately after Putin gave the command to invade Ukraine.
- Use less energy.
- Put in more solar
- Invest in energy-efficient appliances and house insulation.
- Whenever you can, stop using gas completely.
- Think about acquiring batteries
However, the price rise on our electricity bills that will motivate us to do all of these actions won't occur until July of the following year. Hopefully, the problem will have subsided by then. The cost increases will force homeowners to preserve electricity at a period when it is particularly inexpensive to produce, even though wholesale electricity prices may have fallen by then. This is a poor approach to manage affairs.
It would have been more logical to raise electricity costs as soon as a Russian invasion occurred. This level of responsiveness would increase our economy's adaptability and resilience. However, I'm not aware of any plans to implement this kind of innovative thinking.
