Australian Electricity Prices Have Increased for a Decade!

Everybody is pointing a finger at everyone else trying to pass the blame of the ever increasing electricity prices in Australia. At the end of the day, the finger pointing is a result of no-one wanting to be responsible for the fact that average residential electricity price per kWh increased by 47% between 2007/08 to 2015/16.

Network Growth

One of the biggest components of the increase in electricity prices has been the cost of the growth of the network.

As a result of this increase in the expansion of the network, the National Electricity Market (NEM) network value increased from $42b to $72b. Given that the number of Australian residents using electricity has not changed significantly, this additional cost has been born by each electricity user paying a higher price per kWh.

How Network Growth Occurred

There were many different factors that led to this situation, many of which were incorrectly estimated or not foreseen. These include:-

A decline in the amount of electricity used in Australia in 2009 – while forecasts were for growth.

A higher spend required by the network due to government legislation in NSW and Qld to prevent blackouts.

Even in a regulated market, the network businesses benefited from growth, which meant higher costs to consumers.

Electricity Retailers

The second highest increase in electricity prices is due to a price increase by retailers.

Data reviews that 26%of the price increase over the last ten years has been due to the increase in retail margins.

Deregulating the retail electricity market should (according to economics and market forces) have resulted in a drop in the retail price of electricity due to the higher competition. However this, as we know has not occurred.

How Electricity Retail Price Increased

Reasons provided as to why electricity price increased rather than declined include:-

Higher cost prices with more businesses duplicating tasks; and
Higher costs due to advertising and promotion which was not done prior

Generation Costs

In recent years generation prices paid by households has significantly increased.

It is speculated that there has been some questionable behaviour on the part of the generators that is causing this.

Another speculation is that in the past, the cost has been low because of oversupply and that this was the cause of two generators closing down power stations.

The closure of coal plants means that we now rely on gas-fired generation and that at this time gas costs are extremely high. This has resulted in both the oversupply becoming an undersupply and with the corresponding higher costs passed onto households.

Green Schemes

The solar panel subsidies and the energy efficient incentives for homes and businesses represent 16% of the retail electricity price increase in the last decade. It does make one wonder if this was the correct spend of money. Although it has succeeded in reducing emissions, possibly it could have had a better effect under a fairer and better policy.

Conclusion

Finger pointing will go on and on with so many different plays having some influence on the retail price of Australian electricity. However this will not solve the problem and will in fact cause more problems as the cost of electricity becomes too great a burden for retirees and low income Australian households.

Electricity is one of the most basic requirements for living in the modern world. Should it become unaffordable the standards of living of some Austrians would drop significantly unless there is government or some other form of intervention.

Research from the Australian Bureau of Statics reveal that real wages increased 6% over the last decade – against the 44% increase in electricity prices. Thus those on low wages or fixed income are finding this cost an enormous concern.

As an individual household, your choices are solar power and/or changing your electricity provider. As a short term, calling around and seeing if you can get a better deal is a good idea.

Should you be interested in finding out about the cost and return of solar energy, please contact us at Globe Electrical Solutions, we are accredited solar installers in Brisbane.