‘Unprecedented’ wholesale prices leave Aussies vulnerable to power bill hikes

Australian households and businesses have been warned to brace for further hikes to their power bills after new data revealed wholesale electricity prices reached unprecedented levels in the last quarter.

The Australian Energy Market Operator (AEMO) found the average wholesale electricity price on the National Electricity Market (NEM) had effectively doubled in the June quarter, when compared to prices recorded just three months prior, according to its report released on July 29. 

The NEM supplies power to more than 10 million customers across New South Wales, Victoria, Queensland, South Australia, Tasmania and the Australian Capital Territory and is the country’s largest wholesale electricity market. 

In what the AEMO declared an “unparalleled period for Australia’s energy markets”, the average wholesale power price for the NEM skyrocketed to $264 per megawatt hour (MWh) in the three months to June 30, 2022. This was 204 per cent, or $177/MWh, higher than the average wholesale power price in the previous quarter. 

Wholesale power prices were also found to have tripled since the June quarter in 2021, where the quarterly average was recorded at just $85/MWh. 

AEMO’s QED report for Q2 2022, published today, shows record wholesale electricity prices, driven by high international commodity prices, coal-generation outages, and increased gas-fired generation. More on our website: https://t.co/7MFYAhOLxl#QuarterlyUpdate pic.twitter.com/zfDpSYoz20

— AEMO (@AEMO_Energy) July 28, 2022

Violette Mouchaileh, the AEMO’s Reform Delivery Executive General Manager blamed a combination of generator outages, rising international prices and supply issues for surging wholesale electricity costs. 

“Wholesale energy price hikes and volatility were driven by multiple factors, including high international commodity prices, coal-fired generation outages, elevated levels of gas-fired generation, fuel supply issues, and many east coast cities experiencing their coldest start to June in decades,” she said. 

It’s the second time wholesale prices have surged this year, following a dramatic 141 per cent increase recorded during the first quarter of 2022. 

This first-quarter peak heavily contributed to the rise in default electricity pricing for customers in NSW, Victoria, south-east Queensland, SA and Tasmania early last month.

It also triggered the imposition of a little-used price-capping mechanism across the wholesale market, amid concerns of power reserve shortfalls in mid-June.

The escalating costs have left many industry experts, Ms Mouchaileh included, calling for an urgent reform of the market and an accelerated transition to cheaper forms of reliable electricity. 

“What’s clear is the urgent need to build-out renewable energy with diversified firming generation – like batteries, hydro and gas – and transmission investment to provide homes and businesses with low-cost, reliable energy,” she said.

Black coal generated energy made up 43 per cent of the NEM’s power supply during the April to June quarter.

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What about natural gas prices?

Market volatility also extended to wholesale natural gas prices in the last quarter, with the AEMO recording an average price more than three times that seen in the same quarter last year. The average wholesale gas price this quarter was $28.40 per gigajoule (GJ), compared to an average price of $8.20/GJ in the June quarter in 2021.

The AEMO said wholesale gas prices rose significantly in May this year as a result of increased heating demand, higher gas-fired generation and gas supply limits. Similar to the electricity market, price caps were administered for wholesale gas costs across various states during the June quarter. 

In addition to rising prices, concerns have been raised around a potential gas supply shortfall, following the Australian Competition and Consumer Commission’s (ACCC) latest interim report, which covers the six months from January to July. The report projected a 10 per cent shortfall in 2023 if gas producers did not lower the amount of natural gas sent overseas and increase supply for Australian households and businesses. 

The consumer watchdog also warned the government to consider pulling the ‘gas trigger’ – the Australian Domestic Gas Security Mechanism (ADGSM) – which would allow it to restrict the export of excess natural gas supply to ensure there is enough supply for Australian gas customers.  

An ADGSM is currently in place until January 2023, however, this is under consultation for a possible extension until 2030. 

What does this mean for my energy bills?

Surging wholesale prices mean energy bills are likely to further rise over the coming months for both residential and business customers. This is because retailers now have to pay more to purchase power (or natural gas) for supply to customers. For context, wholesale costs typically make up about a third of a customer’s energy bill.

Some Aussie households and businesses have likely already seen their power bill increase though as a result of the initial wholesale pricing surge in April, and default pricing changes in early July. 

And with wholesale prices continuing on an upwards trajectory, further bill shocks could be coming, Christine Seib, Canstar Blue’s Editor-in-Chief, said. 

“Prices in market have already seen a dramatic change as a result of the initial wholesale cost surge in April,” she said. “According to our database, some retailers have increased prices on what would normally be more competitive offers to new customers by as much as 40 per cent in some states in the past month. 

“Many retailers, particularly smaller ones, have also warned customers that their bills could as much as double in the coming months as a result of this market volatility.”

If you are concerned about a bill shock or think you may have difficulty paying a future energy bill, it’s best to contact your provider and see what payment or financial hardship options may be available to you. 

Alternatively, you may be eligible for a rebate or concession from your state government. To see what’s available in your area, visit your state government’s website or click the relevant link below.  

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