As 2022 begins with another unusual start to the year, electricity costs may be impacted, particularly in some states across Australia.
When looking at wholesale energy pricing, it appears that electricity prices are expected to rise, with the average price in QLD increasing by as much as 5.3 cents.
But how would this affect ordinary homeowners and businesses?
Do wholesale electricity prices have an impact on retail prices?
Wholesale spot prices are not paid by residential homeowners or businesses they are where energy retailers purchase their electricity to sell to their customers. Usually on contracts and retail electricity plans these plans set out how much you will be charged for that energy over a fixed period of time.
Wholesale electricity prices are traded on a platform called the National Energy Market NEM. The prices vary depending on the supply and demand of the Australian energy grid.
What effect does this have on your energy bill?
A typical energy bill, only includes about 30-40% of the cost of energy generation, which is the wholesale cost of producing power.
The remaining 60-70 percent of your charge is made up of transportation costs from point A to point B, government programmes such as the renewable energy target, retailer services, and residual costs.
So, even if electricity wholesale rates remain constant, changes in other factors can cause an increase in your power bill. This means that when wholesale prices rise, your average electricity price may climb as well, and vice versa.
However, spot prices are not a perfect predictor of growing electricity rates.
Inflation Raises Electricity Costs
Australia’s inflation rate has remained under 2.1% since 2015 and even with the lowest rate being under 1% in mid 2020.
Obviously this was due to the Covid epidemic however now as a consequence of money printing and global supply chain issues coming to light. This has caused rates to exceed 3%.
This inflation is enough to be noticed in electricity costs and can indicate a rise in electricity prices into the future.
Inflation, on the other hand, might make it appear like power costs are growing when, in fact, they are holding steady or declining.
Ukraine War Affecting Gas Prices
Russia is one of the world’s top exporters of gas and oil. With the restrictions on Russia’s export of certain minerals already in force. This might result in a rise in gas costs in Australia, which in turn could raise wholesale power rates.
This is because generation of electricity uses the different sources some renewables and some natural gas. Natural gas accounts for 21% of Australia’s energy production according to Energy Information Australia.
Which state is most affected?
Going into 2022, Queensland appears to be the most affected state. Electricity rates are predicted to climb by 20% for feed in tariff 11, 16.50% for tariff 31, 20.10% for tariff 33, and 20.80% for tariff 20.
According to the Queensland Competition Authority.
This is mostly due to an increase in wholesale electricity rates. Which was also impacted by a coal plant closure at the Callide power station in May of last year.
This is good news for solar homes since the predicted wholesale price hike would almost certainly raise solar feed in tariff rates, making solar even more economical for people with large solar systems.
The remainder of the country is expected to face a minor hike in power rates, but not as much as Queensland.
