Victorian electricity prices set to increase in the new year.

Posted: 24 December 2019 9:32 am
News

A view of the dying light scattered on rural properties in regional Victoria, just outside Melbourne. Power transmission cables and poles are visible in the image.

From the 1st of January 2020, the Victorian Default Offer (VDO) is set to increase by an average of 7.8% from its current value. This announcement comes even as the Australian Energy Market Commission has predicted a decrease of 20% in energy costs nationwide between 2018 and 2022.

As a result of the hike in the VDO, energy providers across Victoria are expected to increase their prices accordingly, though not to the same extent. Retailer AGL, for example, has announced that the average increase in discounted energy plans will be only 5%, smaller than the VDO increase.

What is the Victorian Default Offer?

'Default offers' were implemented by the Australian Government in July 2019 as a way to help consumers easily compare energy plans offered by different energy retailers. The VDO sets a benchmark (or as in most other states is called a reference price) — the maximum amount retailers can charge for a specific amount of power usage over the course of a year.

Are you affected?

The specific value of the VDO depends on which distribution area of the state you're in. While the increase won't immediately affect many consumers, it will drive up the price of electricity for people who are on a standing offer.

Standing offers are a default energy plan determined by the reference price, as opposed to market offers, which you deliberately purchase from a retailer. You may be on a standing offer if you've never applied for a market offer, have moved house, or your market offer has expired.

Due to the nature of the VDO, a standing offer will always provide you with a fair price, but rarely the best price. Switching from a standing offer to a market offer can help you save money on your electricity use by choosing a plan better suited to your needs.

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How can switching to a market offer help?

The first thing to remember is that a market offer can never cost more than a standing offer, so at the very worst you'll get what you were already getting before. But no matter your energy consumption habits, there's likely to be a market offer that works for you.

The main way a market offer can be cheaper than a standing offer is by charging lower usage rates. This means that you'll be paying a lower flat rate for every unit of electricity you consume. On top of this, some retailers will have different tariff structures like time-of-use tariffs that you can exploit to get even cheaper electricity.

In addition to this, retailers will frequently offer conditional and unconditional discounts on their energy plans. While conditional discounts are a little unreliable because they stop applying once you fail to meet the condition, unconditional discounts provide a guaranteed discount to your energy bill. True, these discounts usually only apply for a fixed period of time, but once they expire you'll still be no worse off than if you were on a standing offer.

The main downside to a market offer is that their rates can change at any time, often without any advance notice. While standing offer rates can only be legally adjusted every six months, your retailer may decide to raise your usage rates suddenly and without warning. This can lead to unexpected price spikes on your energy bill that you won't get on a standing offer.

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