Number of Aussies in energy debt grows with average bills set to rise above $3,000 a year

The number of households struggling to pay their energy bills is rising, and those that are, are in more debt than at any time in the past five years, according to alarming figures from the Australian Energy Regulator (AER).

The watchdog’s data was released just days before the Treasury warned in this week’s Federal Budget economic outlook that even higher energy prices were coming soon – which, based on Canstar Blue’s own data, could push the average household electricity bill to more than $3,000 a year in 2023.

“Further sharp rises in the cost of essentials, such as housing costs and energy, are expected to create pressures for families, particularly for those with lower incomes where these expenses make up a larger share of their budgets,” the budget paper released on Tuesday night noted.

The Treasury estimated electricity prices would jump by a further 20 per cent on average before the end of 2022, with a further 30 per cent rise pegged for 2023-2024. Gas prices were forecast to increase by 20 per cent in the same period, according to the paper.

The energy price rises are expected to flow through to households as wholesale contracts between energy suppliers and energy retailers are renewed. Until now, consumers have been somewhat “buffered”, according to the budget, from the recent wholesale market mayhem as most providers had likely hedged their current pricing years in advance. 

“These energy market challenges are also being exacerbated by aging electricity generation assets and inadequate policy certainty to support investment in new energy infrastructure,” the Treasury noted. 

Electricity bills to be $3,000-plus on average in 2023

Using the Treasury’s forecast increases, Canstar Blue calculated the annual costs consumers might face if on a market-offer electricity or gas plan. It found that the average annual cost of electricity was currently at least $1,935, assuming all discount requirements were met, across Australian capital cities. And the average annual cost of gas was $1,389 on market-offer gas plans. Both estimates used AER benchmarks that assume usage for a three-person residential household.

A 20 per cent increase by the end of the year would increase the annual cost of electricity to $2,322 and a further 30 per cent increase in 2023 would result in electricity bills hitting $3,019 a year on average.

Gas bills would rise to $1,667 on average by the end of 2022 and to $2,167 in 2023, Canstar Blue’s bespoke research found.

Average National Market-Offer Electricity and Gas Costs

Source: www.canstarblue.com.au. Annual costs calculated based on the estimated lowest possible price a representative customer would be charged in a year, assuming all conditions of discount offered (if any) have been met. Average cost based on averaging the capital city averages (based on plans available on Canstar’s database). Electricity: Based on single-rate market offer electricity plans; excluding solar-only plans. Representative customer based on the reference usage per relevant regulator. Perth and Darwin prices have not been included in the electricity assessment. Gas: Based on market offers gas plans. Representative customer based on the reference usage for a three person household with no gas heater per AER electricity and gas bill benchmarks for residential customers. Hobart and Darwin prices have not been included in the gas assessment. Data accurate as of October 27, 2022.

Rising number of households already suffering energy hardship

The Treasury’s forecast and the big jumps in annual energy bills calculated by Canstar Blue followed data from the AER last week that showed Aussie households struggling to pay their energy bills were almost $400 deeper in debt to their energy retailer than was the case just two years ago.

Whether a household is in energy hardship is determined by whether it is on an energy retailer’s hardship program – a safety net that all retailers are required to offer, designed to help bill-payers manage their payments, for example through a reduced payment plan, with the removal of power supply an absolute last resort.

The AER reported that the number of households in energy debt had risen, with 170,547 energy customers taking part in hardship programs at the end of the 2021-22 financial year. This was 23,286 more customers than in the 2018-19 financial year. 

And the average household in hardship was found by the regulator to be $1,772 in debt to their electricity provider at the end of June 2022 – $46 more than they were 12 months prior and $385 more than recorded two years ago.

The AER also noted that households in Tasmania and South Australia were struggling the most, with an average debt whilst in an energy hardship program of $2,469 and $2,364, respectively, as of June 30, 2022. 

Regulator calls for game-changing reforms for vulnerable customers

The rise in energy indebtedness left the AER questioning the industry’s approach to financially vulnerable customers, particularly as the rising cost of living continues to hit household budgets.  

AER Chair Clare Savage said it was time for “game-changer” reforms that recognised vulnerability in energy consumers and created solutions to prevent debt from accumulating. 

“As COVID-19 demonstrated, life can make any of us vulnerable, at any time,” she said. “Unexpected life events can lead to a spiral of mounting bills, debt and great despair. The average debt of customers on hardship programs is around 30–40 per cent higher as at June 2022 compared to pre-pandemic levels.”

A key component of the reform proposed by the AER was to strengthen protections for consumers facing payment difficulty, which aimed to close the gap between debt accumulation and customers receiving support. 

In most cases, customers experiencing financial difficulties weren’t identified by their electricity provider until the customer asked for help, such as via accessing a hardship program, the regulator found.

Another area to be strengthened was the simplicity of energy bills and advice on switching plans, Ms Savage added.

“We also know that consumers experiencing vulnerability tend to be less able to adopt technology and modify their energy use in response to higher prices, and less able to shop around for a cheaper deal,” she said.

According to Canstar Blue’s database, households in New South Wales, Victoria, south-east Queensland and South Australia could save between $185 and $380 by shopping around and switching to the cheapest single rate electricity plan in their area. 

Compare cheap electricity deals in your state

Concerned about paying your next power bill? Here’s some things you can do

If you’re worried about paying your electricity bill, the best thing you can do is reach out to your provider immediately and explain your situation. Your provider can help you to find a solution for paying off your debt, whether that be through a designated payment plan or by placing you in a financial hardship program. 

As Origin Energy’s Customer Advocacy Manager, Mel Homes-Allen focuses on ensuring vulnerable customers receive the support they need to keep the lights on.

She said customers who were experiencing hardship were encouraged to ask about Origin’s Power On program to help manage their debt. 

“For any customers experiencing difficulty paying their energy bills, we encourage them to contact us so that we can provide tailored support today,” she said. “The most important thing is that they reach out and let us know about their situation so that we can provide appropriate support. 

She advised Origin customers to call 13 24 61, or if they needed an interpreter, to call 1300 137 427, or visit https://www.originenergy.com.au/billing-payments/financial-support to find out more about the assistance Origin could offer.

Origin’s Power On program provides short- and long-term solutions to energy customers, through the use of payment plans, Centrepay and direct debit information, energy efficiency advice, rebate and concession information or financial counselling referrals. 

More broadly, it’s important to remember that energy retailers are required by law to assist vulnerable customers manage their payments, with the regulator levying large fines for the providers that fail to do so. Disconnections should be treated as a last resort and must only be completed after issuing a warning notice first – so rest assured that one missed payment won’t result in you losing power. 

For more information about the financial support options available from your electricity provider it is best to visit their website. Alternatively, you can give them a call to talk through your options. 

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