Written by Kerry Mullany
Wholesale power prices in eastern Australia have experienced a significant decline of 59% in the past year, reaching $108 per megawatt hour in the June quarter, compared to the $264 per megawatt hour average seen the previous year.
This drop is attributed to increased black coal-fired electricity generation, lower planned and unplanned outages, and the rise of renewable energy sources like wind and solar. The entry of renewables, along with improved market conditions and generation capabilities, has put downward pressure on wholesale prices.
However, despite the decrease in wholesale prices, retail prices for customers in eastern Australia have increased by up to 30% during the same period.
Feeling like our boy sizzle over here? We want an explanation too!
Energy analysts explain that the higher retail prices are a delayed response to the wholesale price rises seen in the previous year; greatly attributed to the Russian invasion of Ukraine. As the retail market typically operates a year in advance of the wholesale market, it causes a lag in reflecting the changes in costs incurred by retailers.
Though, these price hikes just show the retailers' reluctance to pass on the benefits of lower wholesale costs as households face rising energy bills during a cost of living struggle. Critics argue that energy retailers are taking advantage of the time lag between wholesale and retail markets, leaving customers to bear the brunt of higher prices while wholesale prices continue to decline.
The Australian Energy Market Operator (AEMO) CEO, Daniel Westerman, emphasises that the country's transition towards renewable energy, supported by low-cost sources like solar and wind, along with battery storage and flexible gas generation, will ultimately lead to more stable and lower electricity prices in the long run.
However, the Australian Energy Regulator (AER) has already locked in the default market offer for the current financial year, so the lower wholesale prices will not immediately affect retail bills.
As the nation reduces its dependency on coal and gas and shifts towards renewables, it is expected that volatility in electricity prices will decrease, providing more stability for consumers.
First of all, let's establish what are coal royalties?
Coal royalties are payments made to governments or landowners in exchange for the right to mine coal from a specific area. These royalties are typically a percentage of the coal's value and serve as a vital source of revenue for governments and landowners, compensating them for the extraction of coal resources on their land or within their jurisdiction.
A cap on royalties was implemented during an emergency parliamentary session in response to soaring coal prices caused by global events. To offset the cap's impact on the state budget, royalty rates for coal companies were frozen during this period.
The New South Wales (NSW) government plans to investigate raising royalty rates on the coal industry as the current coal price cap, introduced in December 2022, is set to expire in July 2024.
Energy Minister Penny Sharpe stated that wholesale prices have since fallen, allowing the government to consider changes in the industry. The government will consult with stakeholders to assess potential modifications to the royalty system, with the aim of supporting households and businesses with efficient and affordable energy options.
While the government believes that raising royalty rates would have a negligible impact on power prices, they are seeking further input to verify this claim. With the closure of the AGL-operated Liddell coal power station in April contributing to increased wholesale prices in NSW, it could potentially affect future power bills if passed on by energy providers.
If passed on?! Well, we know energy retailers pass on “costs'' that don’t even exist. It’s not really a question of if, it’s a question of when should we prepare for further energy price rises?
Or curve the trend and ask, when should I book my solar and battery install?