Why Are Power Bills So High?

Many strata residents are struggling as gas and power bills soar – but how high could they go?

In Queensland power bills are expected to rise by up to $220 a year, or 12.6 per cent, in south-east Queensland, according to the AER.

In regional Queensland — or the rest of the state, apart from the south-east corner — power bills will increase by 9.2 per cent, or around $119 each year, according a report by the Queensland Competition Authority.

What’s driving the price hikes?

The AER has indicated there are few major factors to what’s driving the price hikes.

  • The war in Ukraine
  • Unplanned outages at coal-fired and gas plants
  • Extreme weather conditions
  • Increase in network costs

Why are energy prices are getting so high?

Coal

Australia is a net exporter of gas and coal, meaning that we export most of our fossil fuels overseas.

As global prices of coal increases, the cost of generating domestic electricity from coal is increasing.

Additionally, at present, nearly 30% of our coal generation is offline as many of Australia’s coal generators are ageing, which means they fail more often

Domestic delivery difficulties have also been exacerbated due to supply chain disruptions.

Gas

Attempting to meet rising electricity demand, some energy generators have increased gas-powered generation.

However, given Australia exports so much of its domestic gas resources, any additional gas for domestic consumption must be acquired from the rising international market.

Will high prices continue?

The Australian Energy Regulator has warned wholesale power prices are likely to remain high for at least two years. This will hit energy retailers and consumers hard.

What are the main components of a retail electricity bill?

When thinking about your electricity bill, it can help to remember what you’re actually paying for.

Wholesale energy costs are just one component of your bill, and they only account for around 33 per cent of the bill.

A typical residential electricity bill comprises:

  • A retailer’s wholesale costs of buying electricity in spot and hedge markets
  • Network costs to pay for transporting electricity through transmission and distribution networks
  • A retailer’s profit margin
  • A retailer’s cost of servicing customers
  • The cost of environmental schemes for promoting energy efficiency, renewable generation and reducing emissions.

How long does the regulator think prices will remain high for?

he Australian Energy Regulator (AER) released its latest State of the Energy Market report (2022).

That report also warned retail prices would rise from where they are now.

And it broke down the components of a typical residential energy bill to explain where those price pressures would come from.

It said higher inflation would also increase costs, and higher interest rates — which are being used to try to squash inflation — could feed through to higher electricity prices as well.

“In coming years, high inflation outcomes will flow through to network costs, and we are seeing evidence of increasing interest rates that may translate to higher required costs for network capital-raising. In combination, they will pose continued pressures on electricity prices,” it noted.

“Looking beyond 2022–23, it is difficult to forecast retail costs, but they are expected to remain relatively high over the next two years,” it predicted.

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