Energy crisis to worsen as wholesale electricity prices soar to record levels
Households can expect higher energy bills as retailers will likely struggle to keep up with rising costs.
The Australian Energy Market Operator's (AEMO) latest report is a bleak reminder that households will be feeling the impact of the energy crisis for a long while.
- Wholesale electricity spot prices averaged $264 per megawatt-hour (MWh) in the 3 months to June.
- This is twice as much as the previous quarter which had already set an unprecedented record.
- Wholesale electricity prices make up 30-40% of a customer's energy bill which means you will very likely end up paying the price (if you aren't already) in the months to come.
- Wholesale electricity prices impact states that fall under the National Electricity Market (NEM): New South Wales, Victoria, South Australia, Queensland, the ACT and Tasmania.
- Gas prices averaged $28.40 per gigajoule in the east coast markets, up 246% on 12 months ago.
How will wholesale electricity prices affect households?
Wholesale electricity prices make up 30-40% of your energy bill.
Given these prices have reached unprecedented heights yet again, the impact will trickle down to households in the coming months.
For more context, the Australian Energy Regulator officially updated its benchmark pricing on 1 July (as it does every year). This time around, the pricing was raised by as much as 18.3%.
This is known as the reference price and is what helps consumers compare energy plans.
Due to soaring wholesale electricity costs, retailers were forced to either shut down or pass the costs on to their customers on 1 July.
Those that haven't updated their plans will be doing so on 1 August or 1 September.
For example, AGL is expected to raise prices for electricity customers in New South Wales by as much as 18% on 1 August.
Why are energy costs going up?
AEMO executive general manager – reform delivery, Violette Mouchaileh, explained what was driving the prices to reach soaring heights.
"Wholesale energy price hikes and volatility were driven by multiple factors, including high international commodity prices, coal-fired generation outages, elevated levels of gas-fired generation, fuel supply issues, and many east coast cities experiencing their coldest start to June in decades," Ms Mouchaileh said.
It's because of these factors that the regulator had to impose price caps and at one point suspend the NEM in June to avoid blackouts.
The suspension has since lifted but if recent events are anything to go by, it might not be a one-off situation.
What can you do to avoid an energy bill shock?
This week, inflation climbed to 6.1% and now you're being told you'll need to pay even more for energy?
That's a bleak way to head into the weekend but there are ways to avoid losing too much if you stay on top of your finances. Here are some tips to help you out:
- Shop around and compare energy plans to find the best deal available to you. This is advice that state governments continue to give out, especially addressed to households that haven't switched providers in over a year.
- Consider variable rate plans that are 10% below the government reference price, a benchmark that helps you compare energy plans.
- Look out for a fixed rate plan that's anywhere below the reference price. These are a rare find but finding one means you can lock in rates for 12 months.
- Call your current provider if you haven't been informed of a price rise yet. Having all the details is key. It could be that it has a cheaper plan for you to get on.
- Smaller players may end up costing you more money. It might help to stick to a larger provider for now as they have more room to absorb some of the rising wholesale prices.
- Consider reducing your energy consumption by using the clothes dryer less, running the dishwasher during off-peak times, and running the heater for fewer hours. Consider your overall winter heating costs to see how you can be more energy efficient.
Ready to switch and save? Compare energy plans on Finder to get started.