Energy price increases: it’s complicated

There has been considerable media and water cooler conversations about rising energy costs. Some people are seeking to blame the increases on a particular aspect, such as uptake of renewables or the lack of coal; others point to the ‘gold plating’ of poles and wires, while some blame retailers or government green schemes. It’s not that simple.

Vinnies has been tracking energy prices across the national energy market since 2008. During this time, we have found the energy story differs from state to state based on changes in the energy market. The lived experience of households also varies and is shaped by decisions that people are making ‘behind the meter’, such as the installation of solar panels.

What our research tells us

It is true that wholesale energy costs have increased in some places. That is to be expected, as a number of old coal plants have closed in South Australia and Victoria resulting in the shortfall in energy production being made up by more expensive forms of energy generation such as gas-fired turbines. These costs will fall when newer, cheaper forms of energy generation are built. This will occur once we have greater certainty in energy policy.

It is also correct that there has been over-investment in poles and wire. Many have argued that this has been particularly the case in New South Wales and Queensland where government-owned companies over-invested in these assets. These increased costs are currently being stripped back though the activities of the Australian Energy Regulator.

It is also true that dispersion—that is, the difference between the best and worst retail price—has increased significantly in recent years. This means that consumers who are not actively engaged in the market are paying a higher price than those who are shopping around. This raises concerns particularly for vulnerable people who may lack the skills or opportunity to be active in the energy market. This is a major issue in Victoria, but also other states as the retail market evolves. These costs have recently been examined through two processes: the Australian Competition and Consumer Commission’s (ACCC) inquiry into energy prices, which reported to the Treasurer in July; and in Victoria, an independent review that reported to the Victorian Government late last year. To read the ACCC’s report calling for an overhaul of the energy sector, visit: https://www.accc.gov.au/publications/restoring-electricity-affordability-australias-competitive-advantage

Government interventions in the energy market have also added to the cost. This includes the smart meter roll out in Victoria; local, state and territory green schemes such as feed-in tariffs and energy efficiency schemes; and federal government green schemes such as the Renewable Energy Target.

As well as all of the above considerations, the decisions people are making about how they use energy, the most significant being installing solar panels, also changes the end price people pay. The decision to install solar panels is a boon for both the environment and for consumers who have the means and disposable income to take up this opportunity, as they will reap significant cost reductions over time. However, in some cases, this results in increased costs for non-solar households due to system design issues.

It is clear that overall costs have changed for energy consumers. The amount people pay differs depending upon where they live, which poles and wires company services their power supply, whether they are active participants in the retail market, the type of appliance behind the meters and the fuel mix in their homes.  For example, is your home electricity or a dual fuel household (gas and electricity)?

These and other issues compound cost increases in an energy market that is in rapid transition and are having a detrimental impact on many households. So what can be done?

The St Vincent de Paul Society believes government and energy policy makers need to determine the appropriate policy setting and energy market design so cost burdens do not fall disproportionally on particular groups and supports are targeted where they are needed.

This includes making sure the consumer protection frameworks are designed to help people obtain the deals they want and the supports they need when they are struggling to pay bills. It also includes worthwhile initiatives such as effective hardship programs.

State governments also need to ensure they have the appropriate concessions in place that will support people through this energy transition. This should include appropriate emergency payments for unaffordable bills and percentage-based concessions for pension and healthcare card holders that provide reductions in bills.

Finally, we need to ensure that government and policy makers are mindful of the flow on impact of changes in the energy market.For example, the installation of solar panels and interventions such as green schemes can impose. Any inadvertent price increase that fall on other households must be taken into consideration in the overall equation.

The protections will in part assist the energy transition, ensuring supports are there for the vulnerable and costs are not being disproportionately loaded up on particular groups.

For further information, there are a number of reports on the Vinnie’s website at www.vinnies.org.au/energy.

Gavin Dufty is Manager of Policy and Research at the St Vincent de Paul Society Victoria.