Electricity relief on the horizon as wholesale prices plunge

Electricity prices are falling on the back of lower demand and falling commodity costs.

Electricity prices are falling on the back of lower demand and falling commodity costs. Photo: Getty

Australians can look forward to relief on their energy bills, as the latest data shows a big fall in wholesale prices that experts say should start flowing to households.

Wholesale electricity prices were less than half the rate seen last year over the recent September quarter, the Australian Energy Regulator (AER) revealed on Thursday.

The drop in wholesale prices was driven by record-low demand on the grid amid mild weather and the rise of rooftop solar, alongside a plunge in coal costs.

AER board member Jarrod Ball said the regulator was “pleased” wholesale prices are falling.

“Not only did we see energy prices and demand fall during the July to September period, but we also saw a number of quarterly records set for rooftop solar output, electricity demand and gas storage levels,” he said on Thursday.

“The National Electricity Market also saw black coal contribute 45 per cent to total output, its lowest share on record.”

Wholesale costs are not the only factor that go into household energy bills but they are a major determinant.

This means good news for families hit by huge spikes in their energy bills earlier this year as retailers sought to recoup costs from the 2021 electricity crisis.

National Electricity Market (NEM) prices were under $100 per megawatt hour in most regions over the quarter, the AER said, which is a far cry from the more than $200 this time last year.

“Generators offered into the NEM more low-priced capacity this quarter than either last quarter or in Q3 2022,” the AER stated in its report.

“This was a key driver of lower prices. Coal, hydro and large-scale solar generators contributed most of the increase in low-priced capacity.”

Source: AER (click to enlarge).

Grattan Institute energy program director Tony Wood said lower wholesale prices should mean bill relief for households, provided there are no major market shocks over the summer months.

‘Improvements should flow down’

“These improvements should flow down if nothing else changes,” he said, adding that some retail customers who are on deals with exposure to spot prices may already be seeing relief.

But it may take some time for most households to experience significant relief, particularly because regulated default market offers for the 2023-24 financial year only began on July 1.

It won’t be until July 1 next year before regulators take into account lower wholesale prices when setting new default offers, which in turn affect how retailers calibrate market deals.

Australians sitting on default offers can still find cheaper deals, however, with Professor Bruce Mountain, from Victoria University, saying retailers have increasingly been offering larger discounts to regulated prices as wholesale costs have eased from previous peaks.

“Most retailers are offering pretty substantial discounts to market offers,” Mountain said.

“I don’t think the full extent of it [falling wholesale prices] has flowed through to contract markets, but that’s likely to change.”

Mountain said downward pressure on wholesale prices has been driven by a huge fall in the cost of key energy commodities such as coal and gas, alongside rising renewable generation.

“Gas is getting pushed out of the system big time as solar expands,” he said. “The pricing power of gas at the margins is getting even weaker.”

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