What’s driving up Australian electricity prices for homes and businesses?
It is an unfortunate fact of life that Australian consumers will need to become accustomed to ongoing and significant increases to their electricity bill.
This fact sheet aims to demystify what is driving this.
Investment in infrastructure and network improvements
Investment in infrastructure to improve network security and reliability of supply is proving essential and costly, especially for electricity suppliers who have been operating in the market for a long time, such as State-run organisations.
In NSW, for example, consumers will experience price increases of between 16% and 35% by July 2013 just as a result of infrastructure spending. (Source: IPART media release 15 December 2009.) In QLD, electricity prices will increase by 13.8% from 1 July 2010.
The Federal Government’s Proposed Carbon Pollution Reduction Scheme (CPRS)
The CPRS aims to reduce our carbon footprint by making the things we currently do cost prohibitive. Essentially, the CPRS will tax energy companies according to the fuel source and technology they rely on and how much energy their consumers use. These costs will flow directly on to consumers.
The workings of the Scheme mean that people in Victoria can expect to be hit with disproportionate price increases because providers in that State process lower-quality brown coal and their infrastructure is older.
The Federal Government’s Mandatory Renewable Energy Target (MRET) Scheme
This scheme will come into effect on 1 January 2010, and is aimed at increasing investment in renewable energy, thereby reducing greenhouse gas emissions from the electricity sector while the CPRS comes into full effect. By 2020, electricity suppliers must source 20% (up from 10% currently) of their electricity from renewable sources such as wind, solar, hydro, wave, geo-thermal, wood-waste and waste coal mine gas. If they cannot meet these targets directly, they must purchase credits in the form of Renewable Energy Certificates (RECs) from other suppliers that ensure these targets are met by the industry as a whole.
This legislation will have a profound impact on electricity prices because as with any new technology, electricity from renewable sources is comparatively very expensive to produce. These costs will be passed directly on to consumers. For more information on the MRET Scheme go to www.climatechange.com.au
Changes in supply and demand increased prices to the wholesale market
Heat waves, cold snaps and unusual events create spikes in electricity demand which places pressure on the network. Conversely, outages at individual power stations, or sustained supply issues, for example, related to droughts, reduce electricity supply. In both cases the wholesale price of electricity increases, and over time this price rise is passed on to consumers.
Deregulation
Deregulation removes Government subsidies and ensures that the price that consumers pay for energy is set by the market. On the positive side, deregulation encourages competition, and provides consumers with a choice of providers. Like any product, retailers will offer discounts and special offers from time to time, and savvy shoppers can take advantage of rates that offer a discount of 10% or more off regular, ‘default’ rates.
