Wholesale energy prices stabilise: What does this mean for the DMO?

Good news could soon be on the horizon for energy customers seeking price pain reprieve, as the regulator announces stable movements for wholesale energy prices last quarter.

According to the Australian Energy Regulator’s (AER) wholesale markets quarterly report, wholesale electricity prices, which have been wreaking havoc on the market since this time last year, were found to have dropped significantly since the previous quarter and have, at the least, stabilised in most areas over the last 12 months.

Wholesale energy prices are those that retailers pay in order to gain supply for their customer base. These are not the prices that customers pay on their bills.

Lower coal, gas and solar wholesale generation prices attributed to the drop in average wholesale electricity prices from the previous quarter to now, even as demand experienced a slight increase during this time.

The lower generational costs are a likely consequence of the recently implemented price cap intervention on coal and natural gas generation in the country as well as increased solar energy output, the AER suggested.

In comparison to the wholesale power prices recorded this time last year, Queensland experienced the largest shift, while Victoria achieved a somewhat similar price. For New South Wales, South Australia and Tasmania though there was a slight price increase on the previous year.

The AER however believed these price increases seen year-on-year were as a result of heatwaves experienced in February and March pushing up demand, particularly in the case of SA’s average prices.

If there weren’t these high-price events caused by heatwaves, the AER stated that the average quarterly wholesale electricity price would have been about 13% lower in SA, 11% lower in QLD and 7% lower in NSW.

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What does this mean for the upcoming DMO announcement?

The AER is anticipated to release its final Default Market Offer (DMO) determination by May 26, which takes wholesale energy prices, among other market variables, into consideration in order to determine a ‘fair’ price for consumers to pay for power.

Currently, the DMO is anticipated to rise by between 19.5% and 23.7% for households in NSW, south-east Queensland and SA as a result of last year’s wholesale energy price mayhem.

However, changes in the wholesale price, as noted in this quarter’s report, could impact the final result. AER Chair Clare Savage said the regulator was still finalising the DMO for the 2023-2024 year.

“We continue to closely monitor electricity forward contract prices given their relationship to wholesale costs incurred by retailers and the impact it can have on the final Default Market Offer (DMO) price,” she said.

“Our latest quarterly wholesale report shows forward base futures prices for electricity initially stabilised during the early part of 2023, and despite an increase in March they remain well below levels observed in 2022. It also appears that the coal price cap interventions continue to place downward pressure on electricity prices, together with strong renewable output.”

Ms Savage also noted that the heatwave-inflicted price jump at the end of the quarter would likely cause minimal effect on the final determination in late May.

“At this stage, the late quarter increase in base futures prices does not appear to be having an impact on likely DMO outcomes but we will continue to monitor contract prices ahead of releasing our final DMO determination in May.”

The new DMO will come into effect for households and small businesses in NSW, SEQ and SA on July 1.

Gas price cap extension on the cards: Is this the end of energy prices woes?

In more good news for energy consumers, it seems the end of household energy woes could be near, as the government looks to extend its market intervention on gas prices to mid-2025.

In December 2022, the Federal Government set a temporary $12 per gigajoule limit on natural gas prices as a means to combat the soaring costs of wholesale energy generation in the country. The intervention would be in place for 12 months.

The preliminary success of the intervention – as noted by the AER in its latest report – has prompted the government to extend this safeguard in order to prevent producers from reverting back to normal too quickly and displacing households once again.

By capping natural gas prices at the source of generation, it prevents exuberated costs from being passed onto households and small businesses. It also helps in driving this cost down for retailers, leaving them in a greater position to offer discounts and greater product variety to customers.

The draft code for this extension is currently under review.

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