Australian energy consumers weary after years of soaring power prices are set to be slugged again, with benchmark tariffs to rise by between 25.1 and 8.9 per cent in some parts of the country.
In a draft decision landing on the cusp of a federal election, the Australian Energy Regulator (AER) has on Thursday recommended an increase to the so-called default market offer (DMO) in multiple states.
The benchmark price will climb by up to 8.9 per cent for some households in New South Wales, 5.8 per cent in south-east Queensland, and 5.1 per cent in South Australia.
Those price rises are significantly higher than inflation, but well below the 20 per cent price rises seen a few years ago as energy prices spiked around the invasion of Ukraine.
Chair of the AER, Claire Savage, said the agency is conscious of the impact on households.
"We know that cost-of-living pressures are front of mind for many households and small businesses," she said.
"We've seen cost pressures across nearly every component of the DMO, and we have given careful scrutiny to every element of the DMO cost stack to ensure prices are a reasonable reflection of the costs of a retailer to supply electricity."
The DMO acts as a type of safety net for consumers in south-east Queensland, New South Wales, the ACT and South Australia.
It is the maximum price power retailers can charge consumers who are not otherwise on a competitive market offer.
And while it only affects about one-in-10 customers directly, the DMO also serves as the benchmark against which all other retail tariffs are set.
Under prices set for this financial year, the DMO ranges from $1,800 in New South Wales to more than $2,200 in South Australia for a typical household.
In Victoria, the Essential Services Commission determines a similar measure, with a draft for its new default offer due on Thursday as well.
That price rise is much more modest — on average below 1 per cent for households or roughly an extra $12 a year, and under 3 per cent for businesses.
Separate arrangements are in place in Western Australia, the Northern Territory and Tasmania.
Gavin Dufty, the national director of energy at St Vincent de Paul, said the DMO should always be a last resort for consumers unable to or uninterested in getting a better deal.
That it was set to rise again, he said, should underline the importance of seeking the best market offers around.
"You've got to get off your seat and shop around," Mr Dufty said.
"And I know that sounds really boring and passé, but that's where you have to go.
"There is opportunity there. But sitting on your hands, it won't come to you."
The price rises land on the cusp of a federal election, with both the cost and living and energy policy high on the agenda.
Responding to the increase, Energy Minister Chris Bowen pointed to steps already taken to try and reduce the impact of power bills.
"The Albanese government's plan is the only one which is providing bill relief now and supported by experts to deliver a clean, cheap, reliable and resilient energy system into the future," he said.
There has been speculation the government might extend $300 power bill rebates for another year in the looming federal election.
Prices jump after brief reprieve
The expected jump in the DMO from July is set to resume the rapid ascent of power prices in Australia after a brief reprieve — of sorts — last year.
Prices increased only modestly and even fell in some states last year but this followed hikes of up to 40 per cent in the two prior years as the fallout from the 2022 energy crisis hit home.
Driving the latest increase are rising costs in the two biggest parts of the electricity supply chain — the wholesale generation market and the network of transmission and distribution lines.
Josh Stabler from consultancy Energy Edge said the costs of generating power might not have jumped anything like they did in the wake of Russia's invasion of Ukraine when oil and gas prices shot up globally.
But he said they were still higher to varying degrees — less so in Queensland but more in New South Wales and, it is understood, South Australia.
"We are not seeing a material change down in terms of pricing," Mr Stabler said.
"This is not an up and then back down again. This is, at the moment, looking like a new normal.
"That may or may not be politically acceptable but it's what we're seeing on a regular basis at this point."
What's driving the price hikes
The Institute for Energy Economics and Financial Analysis, energy analysts advocating for the renewables transition, said wholesale prices were being pushed higher by fossil fuels.
In a research note, the group pointed to a Griffith University study that found gas directly or indirectly set electricity prices in the market 50 to 90 per cent of the time.
And since gas had become so much more expensive in Australia in recent years, it said the effects of gas-fired power on price had become even greater.
On top of this, IEEFA said a run of unplanned outages at coal plants in the past year had also contributed to the elevated cost of wholesale power.
By contrast, it said renewable energy was correlated with low or even negative spot prices, where generators have to pay someone to take their output off their hands.
As well as the elevated prices in the wholesale market, is it believed there are also significant cost pressures building up in the costs of transporting electricity through Australia's network of poles and wires.
Last year, AER chair Clare Savage foreshadowed the effects of higher network costs on bills when she said there was a "wall of capex" — or capital expenditure — "coming at consumers".
While this spending includes higher interest costs and inflation, it is understood the AER has also had to make other allowances.
Among them is increased expenditure on new and replacement poles and wires for aging networks, bolstered cyber security measures and climate mitigation.
Mr Dufty from St Vincent de Paul echoed the comments of Mr Stabler in saying the trend line was clear — "overall the average is going up".
How households can cut bills
While not all electricity consumers were the same, Mr Dufty said there were ways for all households to cut power bills.
Installing solar panels was an obvious example, he said.
"Households and businesses could save money on their energy bills through reducing the volume of energy they purchase from the grid," wrote Johanna Bowyer, an analyst with IEEFA wrote.
"This can be done by improving the insulation of buildings, replacing old inefficient electric appliances with efficient ones, and installing rooftop solar and storage."
Changing behaviour was another way to ensure households were taking advantage of cheap power prices during the middle of the day, when solar output was abundant.
"Overall, the energy system needs more money for the transition. But that doesn't mean that you have to pay for it if you're a consumer."
For those consumers least able to shield themselves from rising prices, Mr Dufty said there needed to be special, and targeted, consideration given by governments.
He noted that although energy costs were not as high as some others — such as housing — they were essential and unavoidable.
To that end, he said the DMO and its Victorian equivalent were not working and needed to be reviewed.
What's more, he said vulnerable customers who were eligible for concessions needed to make sure they were receiving them, noting that only 40 per cent were currently doing so.
Sustainable government incentives
Beyond that, Mr Dufty said it was imperative that governments funded schemes aimed at boosting the uptake of green devices such as solar panels out of taxes rather than as levies on electricity bills.
Smearing them on electricity bills only punished those customers who could not — or would not — be able to capitalise on the subsidies, he said.
"At the end of the day, we're going through a transition," he said.
"We've got to focus on policy.
"And that's where governments come in. How do they build up the complementary measures to make sure those shock absorbers support people along the way?
"Because if you don't do that, people get left behind and then the politics plays into it."
