Queensland heatwave sparks energy price fears

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Electricity demand has soared as Queensland swelters through another summer, sparking fears that electricity prices might be on the rise.

Electricity spot prices in Queensland exceeded $5,000/MWh on five occasions across the 13th and 14th of January, prompting an investigation by the Australian Energy Regulator (AER). The AER recorded prices reaching as high as $13,883/MWh, many times more expensive than the average price for this time of year (around $100-$200).

While consumers are not immediately affected by these price hikes, concerns have been raised that these events may lead to a price increase when Queensland electricity rates are reviewed on July 1.

What are spot prices?

In order to appreciate the significance of these price spikes, you need to understand how the energy market works. Essentially, generators produce electricity and export this onto the energy network. The electricity retailers, such as AGL and Origin, then purchase this electricity at a wholesale rate called a ‘Spot price’. They then sell this electricity to homes and businesses at a price that reflects the retailing and network costs, as well as the price the retailer itself paid for the electricity.

Spot prices change every five minutes to somewhat reflect supply and demand, and can be very volatile. The spot price could be $14/MWh one moment, and $4,000/MWh the next.

Electricity tariff rates can only be set once per year, so retailers try to predict how spot prices will behave over the coming 12 months when working out what to charge customers. When electricity prices are lower than expected, the retailer turns a profit, but when they’re higher than expected, the retailer operates at a loss. That’s why there are concerns prices will increase.

Are Queensland electricity prices going to rise?

While it is impossible to say with certainty how Queensland electricity prices will react to these events, there’s a more than reasonable chance that Queenslanders will face higher rates on electricity come July 1.

During a price spike event such as those witnessed during heatwaves, electricity retailers are operating at a massive loss. This often results in energy companies increasing their rates the following year to recoup their losses and better insure against future volatility. As an example, South Australia is the most volatile energy market in the nation. In fact, it has nearly had as many price spikes as the rest of the country combined over the past decade. As a result, South Australians are charged higher rates on electricity than any other state.

With all that said, Queensland still boasts a relatively stable electricity market. Even if electricity prices do rise, it’s unlikely at this stage that prices will increase by anything considerable if the market settles down from here on. If your retailer does increase your rates, then be sure to shop around to make sure you’re still receiving the best deal.

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