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Wholesale power prices have fallen by 59 per cent in the past year, despite retail prices increasing by up to 30 per cent for customers in eastern Australia.
Key points:
- Annual wholesale electricity prices fell by 59 per cent in the year to June, compared to the same time last year
- Power bills for households increased by 20 to 30 per cent in some states on July 1
- An energy analyst says the "horrible coincidence" will likely correct itself next year
New figures from the Australian Energy Market Operator (AEMO), which runs the national electricity market for the eastern states, show wholesale electricity prices fell to $108 per megawatt hour in the June quarter, compared to the $264 per megawatt hour average seen last year when the National Electricity Market was suspended.
AEMO's quarterly report noted there was an increase in black coal-fired electricity generation "driven by lower planned and unplanned outages" in New South Wales, despite the closure of the state's coal-fired Liddell Power Station in April.
The quarterly report also said renewable energy sources — specifically wind and solar — along with less volatile market conditions and improved generation ability had put downward pressure on wholesale prices.
"The drivers of those changes in the prices are really threefold," Daniel Westerman, chief executive of AEMO, told RN Breakfast.
"The first is that coal-fired power stations, which still supply about 60 per cent of Australia's energy, are down because coal prices are down.
"The second thing is that we've had more coal plant availability, so it's been there when we need it.
"The third is that we've seen more and more renewables come into the system, and those renewables, as we know, really do push prices down."
The decline in the wholesale electricity price is in stark contrast to retail price rises that came into effect from July 1, with customers in some states paying between 20 to 30 per cent more on their power bills.
Energy analyst with the Grattan Institute, Tony Wood, said the recent increase in power bills for households was a delayed response to wholesale price rises seen last year.
"This report is all about wholesale prices, and that's the people we buy the electricity from, the retailers, they buy their electricity from the generators through the market, and AEMO operates the market," he said.
"The retailers are exposed to these price changes every day … and they have to manage that, which is why some of them went broke last year when the prices went through the roof, because they can't put their prices up to you and me instantaneously.
"So what happens is that as things settle down, we see all these costs were incurred."
Mr Wood said those costs were then included in the prices charged by the retailers, including those set by the Australian Energy Regulator, which took effect on July 1.
Despite the year-on-year fall in the wholesale electricity price, there was a 31 per cent increase between the first and second quarters this year — an increase of $25 per megawatt hour — making it the second-highest wholesale price spike on record for a June quarter.
The report said there were more "high-price events" compared to the first quarter, "largely driven by colder weather conditions, low wind levels and outage-driven transmission restrictions".
But the wholesale price for electricity remains "historically elevated" compared to what would typically be seen for the same time period.
Mr Westerman said that was due to "still having elevated prices in the market", and would be corrected "in the long-run" as Australia moved "towards our energy future".
"[This] is going to be built on four things. The first is low-cost renewable energy fuelled by the sun and the wind and the water, that is Australia's lowest-cost energy," he told ABC News Breakfast.
"The second is firming generations, so batteries, pumped hydro and flexible gas generation, and just to fill out the peaks and the troughs of that variable renewable energy.
"The third is transmission, [which is] really needed to connect those new sources of energy to towns and cities, and the fourth is a grid that can run at times on entirely renewable energy."
Winter power bill relief unlikely
Although annual wholesale electricity prices have fallen, it is unlikely to translate to hip-pocket relief for individuals and families receiving their winter power bills in the coming months.
Mr Wood said the wholesale electricity market operated a year in advance of the retail market, and the discrepancy was a delayed correction.
"It's just a horrible coincidence. What [the generators] are doing is recovering the costs they incurred to try and keep the system more or less stable, and yet the wholesale price is now coming down," he said.
"So if nothing else changes, what we should see this time next year is the implications of lower costs then being reflected in, hopefully, a reduction in wholesale prices.
"But that all depends on what happens between now and then."
Mr Westerman said that the lower prices would not affect retail bills in the next 12 months because the Australian Energy Regulator (AER) has locked in the default market offer for the current financial year.
"That default market offer, which encompasses all of the components of the retail bill. The wholesale energy price, which is what we're talking about here, the network costs and, of course, the retailer costs. So that's set," he said.
"What we're focused on is the wholesale energy component and how we drive that down over time, and the answer to that is firmed renewable energy with transmission."
The default market offer is the maximum price retailers can charge customers on default or "standing offer" contracts, which affect customers in South Australia, New South Wales and south-east Queensland.
Changes to household electricity prices in Victoria, Tasmania, the ACT and Western Australia are not set by the national regulator.
The AER is expected to begin its review of the default market offer for the next financial year in early 2024.
Mr Westerman expects there will be less volatility in electricity prices as Australia shifts towards renewable energy sources.
"The best way to break that volatility is to decouple ourselves from international commodity prices and that is renewable energy.
"When we're dependent upon coal and gas, we will see volatility.
"But the less we're dependent upon coal and gas, the less we'll see the international price shocks come into our home bills."
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