Electrity prices to rise on east coast
Andy Park: Household power bills are set to rise about to 9 per cent from July for some, following a pricing decision by the Australian Energy Regulator. For more on this, business correspondent David Taylor joined me earlier. David, what is the default market offer and how will it change from July 1?
David Taylor: Well, Andy, I'll hit you with some jargon first up. The Energy Regulator has released its final determination for the default market offer for electricity prices for next financial year. So the default market offer is a price for electricity for customers on standing offers. So not negotiated contracts with their providers. Most households and businesses, Andy, are on standing offers. It's basically what you get when you call up or sign up for a deal. From July 2025, residential customers on standing offer plans will experience increases of half a per cent to 3.7 per cent in southeast Queensland, 2.3 per cent to 3.2 per cent in South Australia and 8.3 per cent to 9.7 per cent in New South Wales. And Andy, small business customers on standing offer plans will experience increases of 0.8 of 1 per cent to 8.5 per cent. And there's a big range there because, Andy, it depends on the region that you're in.
Andy Park: So why is this safety net energy price for households and businesses increasing?
David Taylor: Well, simply because the cost of making or producing the energy has gone up, especially in New South Wales. Now, Clare Savage is the chair of the regulator that's made this decision. It determines prices for New South Wales, Queensland and South Australia. She says it was a difficult decision to make and many factors determine an energy bill, including the cost of making power.
Clare Savage: Retailers, the people who sell it to you, they buy forward contracts in there against sort of spot prices in the market. And those forward contracts have been higher. And some of that's to do with less reliable coal plant that's been running in New South Wales. So it can fall over sometimes and drive big price spikes. 9.7 per cent, yes, is the worst case scenario. But what we want to see customers doing is out there looking for the best deal. Some of the cheapest plans in the market can be between 18 and 27 per cent below the default market offer. So shopping around is a great strategy.
David Taylor: Clare Savage there. And one thing that Clare Savage hasn't mentioned is, of course, the cost of finance for these energy companies to produce the energy, because they obviously have to finance the way they do business. Rising long term interest rates, therefore, are also a big part of this story. Tim Buckley is a director of Clean Energy Finance.
Tim Buckley: It's complex. Energy is complex. There are four key components, network costs, wholesale prices, retail costs. All of those have gone up significantly across the board. Interest rates are up. So network costs are up. Unfortunately, the network exists for 50, 60, 70 years. The grid transmission poles and wires, they're there for 50, 60, 70 years. So we're exposed to long term interest rates. And there's also a slow delay in getting that through. So interest rates were in a 60 year down cycle until three years ago. They've been going up. This, unfortunately, is the inevitable delayed work through of long term interest rates going up.
Andy Park: Clean Energy Finance Director Tim Buckley and David, when hearing prices are rising, many might be concerned it's bad news for inflation. Could that be the case?
David Taylor: It could be. But we have found, Andy, that energy prices are very political. And in terms of headline inflation, the Treasurer and Treasurers across state and capital territories have decided to offer rebates. So we'll have to wait for political decisions on the back of this independent regulatory decision. But so far, history shows that big price changes like this don't impact long term inflation.
Andy Park: David Taylor.
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