Why do energy prices change?

There’s a lot that goes on behind the scenes when it comes to electricity. As energy retailers, we deal with various unavoidable costs to ensure that your lights stay on every day.

Every July, the energy regulator bigwigs conduct a thorough review of the key costs that make up the energy supply chain. Based on their review, the standing offer for energy is adjusted.

We’d love to bring down the prices for you, but sometimes market conditions throw a curveball, resulting in price increases. That’s the case again in 2023 and we’ll explain why this is happening.

The impact of these changes on your bill depends on factors like your usage, network region, and whether you have solar panels.

Let’s talk about the main factors that contribute to changes in energy prices:

• Wholesale energy: This is the electricity we buy from generators to supply your property. It makes up the biggest chunk of your energy costs. Unfortunately, Australia has an overreliance on fossil fuels like coal and gas, and their costs have skyrocketed compared to previous years. On top of that, Australia has also had some reliability issues with old coal-fired power plants. As a result, the price we can buy power for has almost doubled since the start of 2022. That’s why we consider our mission to accelerate the uptake of renewable energy so crucial – it’s better for the planet and energy prices because once renewables are built they’re not impacted by the wild swings in the cost of fossil fuels.
• Distribution & network: We pay local network service providers to keep the power flowing through the poles and wires in your area. The costs vary depending on where you live and the number of upgrades that are needed. This year, these costs have mostly increased due to higher inflation.

Distribution and wholesale costs make up the majority of an average electricity bill. 

• Solar: If you have solar panels, the value of the power you export to the grid is directly linked to wholesale prices. When wholesale prices increase, the value of solar power generally goes up as well (at least with Energy Locals!), and vice versa. This year we’ve increased our solar feed-in tariffs for all our members.
• Environmental: As retailers, we have to comply with various government environmental schemes, each of which aim to encourage investment in renewable energy. The good news is that the costs associated with these regulations have decreased.
• Metering: To access your energy usage data from meters, we pay the metering provider or the local network service provider. In most cases outside Victoria, metering costs have been increasing year-on-year due to the rollout of more smart meters, which is a regulatory requirement in many cases. These meters are more expensive than manually-read meters.
• Energy efficiency: All energy providers are required to pay fees to fund the various energy efficiency programs that are run by most State governments.

We’ll always give you the lowest prices we can

While annual price changes are an unavoidable part of our industry, our team has worked hard to limit price rises as far as possible within the environment of much higher wholesale prices.

Please remember that our monthly membership is how we cover our running costs, which means you benefit from energy rates at the price we buy them. We’re here to help you save on your power usage as it doesn’t impact our bottom line and reckon this is the fairest and most transparent way to pay for such an essential service. 

We also only change our prices once a year so you can rest easy knowing there will be no hiking of prices later from us for a profit grab.

The longer-term outlook

Based on the data we see in the market, it doesn’t look like the current high wholesale power prices will reduce anytime soon. The one exception is in Victoria where prices for the following year have started to reduce a bit. When we start purchasing energy for the subsequent financial year, if we can get it cheaper then we will pass on those savings to our customers during our next reprice.

Policy fixes

Speaking frankly, Australia has meandered along without a coherent national energy policy for too long. It’s not surprising that coal power stations are breaking down: the owners of them had little incentive to keep upgrading them without long-term policy uncertainty.

However, rising coal and gas prices – which feed into higher wholesale electricity prices given they’re still used for the majority of generation – could and should have been avoided. The government eventually announced price caps, but they’ve not been sufficient to avoid nasty price increases this year. Companies that have access to heaps of coal and gas but still opportunistically pass though significant customer price increases while also announcing increased profit outlooks (yes, we’re talking about you Origin and AGL) should be ashamed of themselves.

Other things that we believe will help include:

• A domestic gas reservation policy. It’s crazy to see gas exported at high international prices when there’s not enough affordable gas for customers who live in the country that it’s coming from.
• A capacity market, meaning power stations are paid to have generation available when required. The introduction of this should be coupled with a reduction in the current maximum price that wholesale power can reach, which is an eye-watering $15/kWh (yes, 15 dollars per kWh).
• An extension of the STC scheme, which subsidises the cost of solar PV, to also include the installation of battery storage. In conjunction with our partners such as Tesla and Sonnen , we’re responsible for integrating thousands of domestic batteries with the energy market and they’ll play an increasingly important role in ensuring that big generators can no longer game the market.

So, I’m sorry that this is another year of a horrible price increase. It shouldn’t have to be this way and we’ll keep doing whatever we can to push for better outcomes for customers. If we can help you in any way, please contact our Australia-based team and we’ll do our best to assist.

Adrian
Founder, Energy Locals