Electricity price rises will be significantly lower than predicted in October’s budget but there is still more pain on the way for households and businesses, according to Energy Minister Chris Bowen.
In a major speech at the Sydney Institute on Monday evening, Bowen will argue the government’s energy market intervention – which has temporarily capped domestic gas at $12 per gigajoule for 18 months and coal at $125 per tonne – has worked to slow down forecast price hikes.
In October, the federal budget forecast a 20 per cent rise in electricity costs in 2022-23 and a 30 per cent rise in electricity costs in 2023-24, which was later revised up to 36 per cent.
But Bowen will say in the speech that, according to a new estimate from Treasury, the market intervention has meant that “electricity prices nationally would increase 13 percentage points less in 2023-24 than if we hadn’t taken action”.
Households and small businesses are therefore expected to see electricity prices rise by an average of about 23 per cent nationally.
On Wednesday, the Australian Energy Regulator will release its draft Default Market Offer, which is the reference price for households and small business electricity prices in NSW, SA and south-east Queensland and the rate that about 10 per cent of electricity customers pay.
The regulator warned the government in November that it estimated the price rises for the default market offer would be even higher than forecast in the federal budget.
For NSW, the prediction by the regulator was of a 35 to 44 per cent hike in NSW, 51 per cent in SA and 41 per cent south-east Queensland.
Bowen said he did not wish to pre-empt the Regulator’s price decision, but “I expect the draft DMO released this week to be significantly lower than the AER’s predictions pre-intervention”.
“I know that will be cold comfort for people who will still have to deal with the resulting energy bill increases,” he will say, according to an advance copy of his speech.
Bowen will argue, citing an International Energy Agency estimate, that 90 per cent of the energy price hikes across the world are due to the impact of Russia’s illegal invasion of Ukraine, which had triggered “the greatest global energy crisis since at least the 1970s”.
“The Russian invasion of Ukraine has had devastating impacts on energy security, with much of Europe held captive over the supply of oil and gas from Russia in the last 12 months. It has also had severe impacts on energy affordability … and despite our distance from the conflict, Australia has not been immune,” he said.
The average gas price jumped from $10 a gigajoule at the time of Russia’s invasion to $32 a gigajoule by May, with coal prices following suit, and average wholesale electricity prices jumped from $85/ megawatt-hour at the start of the Russian invasion to $286.
“This is what led to the government’s decision to introduce gas and coal caps in December,” Bowen will say. “Our caps were set to account for a reasonable profit margin, not an unjustified one. And encouragingly, we are starting to see signs that the action is having an effect in dampening the price rises.”
“Futures markets have responded accordingly – a recent comparison of 2023 wholesale electricity prices in November with the prices in February shows that forecast wholesale prices for 2023 have dropped by 46 per cent in Queensland, 41 per cent in NSW, 48 per cent in South Australia and 34 per cent in Victoria. And yet, there are still some who criticise the action.”
NSW Labor leader Chris Minns has promised $485 million in energy bill assistance for 320,000 eligible small businesses and 1.6 million eligible NSW families and households if he wins the state election later this month.
But NSW state energy minister Matt Kean has said Labor’s plan for greater government intervention in the energy market is a big risk to electricity reliability and affordability in NSW.
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