Domestic power bills have risen substantially across Australia over the last decade, and they are expected to increase further in coming years. Find out why, and what we can do about it.

Is the Renewable Energy Target driving up power bills?

Opponents of the Renewable Energy Target often claim that the target is forcing up the price of power. However, analysis from energy market experts ROAM Consulting found that Australian households would pay over half a billion dollars more for power in 2020 without the Renewable Energy Target in place, and up to $1.4 billion more per year beyond that.

Even the government’s own modelling, conducted by ACIL Allen as part of the Renewable Energy Target review, found that the average household electricity bill would be lower in the future with the target in place than without it.

This is because less renewable energy generation means we need more gas, which the Australian Energy Market Operator (AEMO) forecasts to increase in price by 48 per cent over the next 20 years. A variety of energy sources also means more competition in the electricity market – and as in any market, competition helps keep prices down.

A recent report by the Australian National University showed that between 2006 and 2016, electricity price rises were highest in the states with relatively low levels of renewable energy and a high reliance on gas and/or coal generation (136 per cent in Queensland, 118 per cent in Victoria and 109 per cent in New South Wales). In contrast, South Australia, which now generates almost half of its energy from renewables, experienced a far lower electricity price rise (87 per cent) over the same period.

Why have electricity prices gone up so much in the last few years?

Investment in the electricity network – the poles and wires that deliver power to homes and businesses – has been the primary driver in power bill increases for some time, but network spending contracted in 2016.

Nonetheless, poles and wires still accounted for 40 to 55 per cent of power bills, whereas environmental policies made up just 5 to 15 per cent of domestic electricity bills over the same period.

A caustic political debate continues to leave Australia without a major carbon and energy policy beyond the end of the decade. This uncertainty means necessary investments in our electricity system are not being made, and this is also contributing to higher power prices.

However, the falling cost of energy storage and solar, along with trials of smart technology such as virtual power plants, are showing strong potential to change the way customers and retailers interact with the grid, reducing costs for consumers and increasing grid flexibility.

What will happen to electricity prices in future?

While the national average annual residential electricity bill fell from $1507 in 2014-15 to $1296 in 2015-16, the Australian Electricity Market Commission (AEMC) expects wholesale costs – the cost of actually generating power – to rise over the next two years. The closure of South Australia’s Northern power station in mid-2016, the retirement of Hazelwood power station in Victoria and the changing network generation mix are expected to result in price rises over the next two years in all jurisdictions except Queensland and Tasmania.

While opponents of the Renewable Energy Target suggest that reducing or removing the target will lead to lower power prices, it’s not that simple. Reducing the Renewable Energy Target means more of our electricity will need to come from gas-fired power, the cost of which is set to rise dramatically over the course of the decade. Meanwhile, the price of energy from renewable sources such as wind and solar continues to fall.

The result of all this is that without the Renewable Energy Target to encourage more renewable power generation, Australian households would pay a total of $510 million a year extra for electricity in 2020 (equivalent to more than $50 per household). Beyond 2020, the extra cost could rise to $1.4 billion each year.

What can we do to combat rising electricity prices?

In addition to retaining the Renewable Energy Target, the best thing we can do to combat rising electricity prices is to reduce or better manage ‘peak demand’.

Peak demand refers to the small number of times each year when very high amounts of electricity are used – usually the hottest few days of summer. As we build more houses and install more air-conditioners, the demand for electricity on these very hot days goes up, and we need to build more power plants to avoid blackouts.

These new plants come at a considerable cost to consumers, even though they might only be used for a few hours a year (over the whole of 2012, the electricity network experienced peak demand for less than 40 hours). Energy policy experts generally agree that building additional power plants specifically to meet the small number of peak demand periods every year is the most expensive way to deal with the issue.

So what’s the solution? Clean energy sources like co-generationtri-generation and solar can help reduce strain on the electricity network during peak demand times. And energy efficiency measures can also make a big impact in reducing peak demand.

The increasing uptake of rooftop solar panels is already playing a major role in managing peak demand on hot summer days. The technology’s growing contribution was particularly evident during the January 2014 heatwave – the Energy Supply Association of Australia acknowledged that rooftop solar probably stopped Victoria from hitting a new record for network power use on a single day.

There is also substantial scope for different types of ‘smart’ power demand management to help reduce peak demand. These can include remotely cycling air-conditioners on and off, more widespread use of energy storage and a system that charges different rates for power use during peak periods.

By better managing peak demand, we can reduce the need to build expensive extra power infrastructure and help ease the pain of residential power prices.

References

  • AEMC Residential Electricity Price Trends, December 2016
  • AEMO National Gas Forecasting Report for Eastern and South-eastern Australia, December 2016
  • Bloomberg New Energy Finance
  • BREE, 2013, Australian Energy Technology Assessment 2013 Model Update
  • N Harmsen, ABC News, South Australian power bills to increase by $115 after Hazelwood power station closure, December 2016
  • B Phillips, ANU Centre for Social Research, Research Note: Household Energy Costs in Australia 2006 to 2016, February 2017
  • Roam Consulting, RET Policy Analysis, April 2014
  • Threat to energy support now shifts to bush fires and storms, ESAA media release, 17 January 2014.