Soaring wholesale prices to hike up electricity bills

Households and businesses will likely face soaring power bills in the coming months as wholesale electricity prices have more than doubled over the past 12 months.

In its latest report, the Australian Energy Market Operator (AEMO) revealed wholesale costs on the National Electricity Market (NEM) have risen by 141 per cent from the same period last year.

The NEM is Australia’s largest wholesale market that supplies electricity to around 10 million customers in New South Wales, Victoria, Queensland, South Australia, Tasmania and the ACT.

Wholesale electricity prices in the NEM soared to an average of $87 per megawatt-hour (MWh) for the first quarter of 2022, a 67 per cent increase on the previous quarter.

These price spikes have been driven by coal plant outages, higher electricity-generating fuel costs and an increased demand on grid power, according to the AEMO.

The AEMO data shows that Queensland and New South Wales have been hit the hardest, with the Sunshine State recording an average wholesale price of $150/MWh this quarter – ‘its second highest for any quarter since 1998’.

“Wholesale prices in Queensland and NSW were again significantly higher than in southern states,” said Violette Mouchaileh, AEMO Executive General Manager Reform Delivery.

“This was due to the larger price-setting role of black coal generation and system security constraints limiting daytime electricity transfers from Victoria into NSW, despite an average energy price difference of $48/MWh.”

According to the AMEO, black coal generation in Australia hit its lowest Q1 average in two years, declining by 374 megawatts (MW) in the latest quarter. Brown coal generation also fell by 304 MW. However, wind and grid-scale solar energy generation increased by 743 MW in the past year, hitting a new quarterly record of 4,190 MW.

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Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the Ausgrid network in Sydney but prices may vary depending on your circumstances. This comparison assumes general energy usage of 3900kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the Citipower network in Melbourne but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the Energex network in Brisbane but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4600kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the SA Power network in Adelaide but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

What does this mean for energy bills?

In a nutshell, rising wholesale prices means retailers have to pay more for electricity that is then supplied to paying customers. And the more it costs retailers to buy electricity from the wholesale market, the more they’ll need to recoup costs through customers’ power bills. This is due to wholesale prices making up about a third of an energy bill, in addition to other charges, like network costs, environmental schemes and retailer margins.

While it is likely these elevated wholesale prices will have an industry-wide impact, there may be a degree of comfort for existing customers with some providers, John McCluskey, Executive Manager of GloBird Energy, told Canstar Blue.

“Lately we have noticed a huge increase in savvy customers signing up to GloBird knowing they will be protected from a price rise as we generally only reprice existing customers once a year,” he said.

“I don’t think these soaring prices will be anywhere near as bad as Europe or the devastating price increase that happened in Texas. I believe Australian families will only have some temporary discomfort until things settle down.”

Mr McCluskey refers to the energy crisis currently rocking Europe, which is largely due to a combination of low inventories, Russia’s invasion of Ukraine and global supply shortages of natural gas. Texas faced a similar crisis as prices surged to more than $1,000/MWh after the US state experienced a steep rise in demand thanks to extreme winter conditions.

Back in Australia, we’ve already noticed some energy retailers changing their products and prices to new customers, Canstar Blue’s Energy Editor, Jared Mullane, noted.

“Surging wholesale costs will likely place pressure on bills, and our database shows that recent price changes from energy retailers are generally moving in an upward direction,” he said. “And there is little certainty as to how long these unfavourable market conditions will last, which indicates many customers could be in for a rough winter.”

It comes after households were recently warned of energy bill shock, particularly during the cooler months when many Australians are already using more power.

Mr Mullane added: “On top of these energy woes, inflation in Australia has hit a 20-year high, placing immense pressure on budgets. With the cost of living rising, now’s the time for bill-payers to check their current energy plan’s rates to see if they’re still getting a fair price on power, and to switch if they find a better deal out there.”

Image credit: jaroslava V/Shutterstock.com

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