Why Are Energy Prices Going Up?

You may have heard a lot in the news lately about how the price of energy, especially electricity, is going up. This is bad news for people who are already struggling with rising costs of living. Why then are electricity prices going up and is there anything that everyday Aussies can do about it (apart from comparing energy providers through Billy Explores?)

The wholesale price of electricity has gone up a lot, which is one of the main things that is making customer prices go up. This is how much we pay to buy the electricity that we sell to you. Origin and a number of other retailers also make some of their own electricity to sell to customers. The cost of making electricity has also gone up. So how does the cost of these things show up on your energy bill?

Why Is The Cost Of Electricity Going Up?

The Australian Energy Market Operator (AEMO) recently said that the wholesale cost of electricity in the National Electricity Market (NEM) for the first three months of 2022 has gone up by 141% compared to the same quarter last year.

Compare the market for electricity to the stock market. Electricity comes from places like coal and gas-fired power plants, solar, hydro, and wind farms. Retailers buy it from the market. Like stocks, the prices go up and down depending on a number of different factors.

Recently, electricity prices have gone up by quite a lot. For many years, they were pretty stable, and in 2021, they were at their lowest point in 8 years.

Here are some reasons why electricity bills are going up:

  1. A rise in the price of coal and gas around the world. Most of Australia’s electricity is still made from coal and gas.
  2. international gas prices are at record highs, with the Asian Liquified Natural Gas (LNG) price shown in Australian dollars per Gigajoule:
  3. The cost of energy is going up everywhere, as you can see. The Russian invasion of Ukraine has caused (at least in part) an energy crisis in Europe. All over the world, including here in Australia, people are feeling the effects.
  4. These pressures on the world are made worse by the fact that the local electricity supply has been unstable. Because of unplanned problems at power plants and bad weather, less electricity is being made than usual. For example, in the last few weeks, there have been times when up to 30% of the country’s coal generation capacity has been down.

Because of all of these things, the cost of making electricity has gone up, and at the same time, there has been less of it. Prices have gone up because of both high demand and expensive materials (like coal).

But How Will This Affect My Electricity Bills?

At least once a year, energy retailers look at their prices and change them based on how much it costs to provide energy. According to the 2021 market report from the Australian Competition and Consumer Commission (ACCC), these are the parts of the average Australian household’s electricity bill:

  • The price of electricity at the grid level (32 percent )
  • Costs of keeping the lines, poles, and other infrastructure in good shape (45 percent )
  • Costs of environmental certificates, or how much it costs to meet obligations to use renewable energy (10 percent )
  • Costs of running a store, such as billing, customer service, etc (10 percent )
  • Retail margin (3 percent )

Since wholesale electricity costs make up more than a third of electricity bills, stores need to be able to make up for some of the price increases we’re seeing. But at the same time, they should be aware of the cost-of-living pressures that many people already feel.

If a store can’t cover its operating costs, it might have to close. This isn’t good for the industry or for customers because it means there will be less competition. This is already happening in Australia, where some small stores have stopped taking on new customers because they can’t afford to. Or, for customers who are already paying, some have raised prices by as much as 100%.

Don’t worry, many energy providers won’t raise prices to these levels, but many Aussies will see their prices go up. Some providers like Origin Energy own and run some of their own electricity generation because they are bigger retailers. They’re in a better position than some to handle the ups and downs of the wholesale electricity market because of this. But even they still have trouble getting enough coal, which drives up costs.

The Australian Energy Regulator (AER) just released the latest Default Market Offer (DMO), which is the maximum price retailers can charge customers for standing offers in New South Wales, Queensland, and South Australia as of July 1, 2022. Based on this decision, prices for households will go up by between 7.2% and 18.3%, depending on where the customer lives and what kind of plan they have, and prices for small businesses will go up by between 5.7% and 19.7%.

From July 1, 2022, the Essential Services Commission (ESC) in Victoria has also said that prices for the Victorian Default Offer (VDO) will go up by up to 5 percent for residential and small business customers in that state.

How Can I Save Money On My Electricity Bill?

Billy Explores has lots of great advice to help you save money on your electricity bill and energy costs. The best way is to check out the handy energy saving tips here, and then compare energy providers through Billy Explores. It’s fast and free, and we have a great range of energy providers who can match your electricity usage to the best energy plan for your needs. Just click here to get started!