Future prices for electricity dropped by about a third after the government announced its energy price caps, in what Treasurer Jim Chalmers says is a sign the market intervention is already taking effect.
But while wholesale contracts for 2023 are already cheaper, one expert warned consumers won’t see a difference in their bills until the middle of the year.
A Treasury analysis of ASX data found retailers were paying 38 per cent less per megawatt hour in NSW, 29 per cent less in Victoria and 44 per cent less in Queensland to lock in future electricity supplies on December 21 compared to November 30, before the price caps were announced.
The temporary caps of $12 a gigajoule on gas and $125 a tonne on thermal coal were aimed at reining in energy bills after Treasury forecast retail electricity prices would rise about 50 per cent and gas prices 40 per cent over the next two years amid global energy shortages caused by the Ukraine war.
Chalmers said on Friday it would take time for the financial relief to flow to businesses and households, “but it’s heartening to see the plan is already starting to work”.
“It’s important that we start seeing these forecast price improvements flow through to consumers,” he said, adding the consumer watchdog would be watching closely.
The Grattan Institute’s deputy program director for climate and energy, Alison Reeve, said the drop in futures prices was probably mostly due to the price caps although possible other factors included a decline in international prices and coal mines coming back online after flooding events.
“There could also be other things at play … but that drop is pretty sharp, and when you look at it, the drop is highest in Queensland and NSW, states mostly affected by the price cap,” she said.
She said the falls should flow through to households and businesses from July but it would depend on whether consumers were locked in to fixed contracts.
The government has claimed household electricity bills will be about $230 cheaper on average in 2023-24 than they would have been without the legislation, however, that modelling has not been made public.
In relation to Labor’s market intervention, Opposition Leader Peter Dutton said on Wednesday: “I’d just say, next time you get your bill, whether it’s this month or this quarter, watch it for the next 12 months and see if your bill goes down under Labor because I suspect it’s going to continue to go up. If bills blow out and we experience blackouts in our country then that is going to be a disaster for small businesses and for families.”
Energy Minister Chris Bowen said the intervention was just the start.
“This targeted short-term response was necessary, but so is the long-term plan to increase the uptake of affordable, firmed renewable energy, to reduce our reliance on volatile overseas markets and power Australia’s future as a renewable energy superpower,” he said.
Falling prices on the futures market – where large energy users such as manufacturers buy contracts for electricity supply in coming years – indicate where future retail power prices will end up.
The Australian Energy Regulator considers a weighted average of these forward prices when it sets the “default market offers” for each state every year.
The default market offer – in effect a ceiling on what retailers can charge customers that don’t take up special deals – last year led to double-digit increases in just about every state and territory because of the soaring costs of coal and gas, which largely influence electricity prices.
With Mike Foley
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