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Why Is Electricity So Expensive in Australia?

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Electricity in Australia

In 2018, articles circulated on the Web. Australians were seeking answers surrounding high electricity prices. Prices across the country’s eastern and south-eastern coast rose by 130 per cent between 2015 and 2017 alone.

Many sources said that these soaring prices were the new normal.

Then COVID and the rampant bushfires hit, further affecting electricity markets. This has affected both residential consumers and businesses alike.

Although electricity prices are technically falling, many Australians have seen an increase in their bills. There are many variables are play here.

Greatest awareness is the first critical step in lowering your energy costs. Here’s why electricity is so expensive across the nation — and what you can do about it.

Access to Electricity: Poles and Wires

Over the past decade, electricity prices in Australia have increased by 63 per cent on top of inflation.

One of the main reasons for this is access to electricity. In some areas, access to electricity is twice the cost of the electricity itself. These costs make up the largest component of an electricity bill in all states except for South Australia, where generation costs are higher.

Accessibility is based on the network of poles and wires around your home or business, accounting for approximately half of the average household bill. Sources report that in recent years, the increase in prices is because of much-needed network investments. These investments are addressing the previous underinvestment in network maintenance and the need for increased capacity.

When assessing international comparisons, poles and wires in New South Wales and Queensland are the simplest explanation for Australia’s sky-high prices. This is because of the multi-billion dollar upgrade to the network. When looking at places such as Victoria, residents spend less on poles and wires. However, prices are still much higher than they are in Victoria than they are around the world.

To better understand your bill, know that there are three primary components. These include:

  • Wholesale and retail prices, which change based on supply and demand
  • The cost of poles and wires
  • The cost of environmental policies

Across Australia, the above three components make up 39 per cent, 53 per cent and eight per cent respectively.

Retail Margin for Those Selling the Electricity

Electricity retailers have also played a key role in rising consumer prices. The pricing structures presented to consumers are confusing and the lack of transparency makes it challenging to compare across the market. Standing offers allow retailers to set prices, so inactive customers are paying more than they need to be for electricity. This results in hefty profit margins for retailers and rising consumer bills.

A recent analysis shows that Australians are paying up to $200 a year too much for their electricity. Unfortunately, a combination of confusing bills and not shopping around often results in a much more costly bill. Also, retailer discounts have become highly problematic based on the attached terms. These discounts are conditional on the customer paying on time, and those who cannot do so, often face excessive late fees. These fees can add up to hundreds per year and have acted as somewhat of a trap for lower-income households.

According to a report by Grattan Institute, in Victoria, profit margins are higher than other retail sectors, and more than double of what regulators considered “fair” when electricity prices were set. If the profit margins of electricity retailers were the same as other retail businesses, Victorians would have an extra $250 million in their pockets each year. Consumers are even paying for the sales and marketing activities of energy businesses, which adds up to a shocking $120 million per year. The report also found that there was little correlation between the size of a bill and the apparent discount offered.

Policy Failures

With so many people asking, how did we get it, why is electricity so expensive in Australia?

It’s important to look back on the policy failures over the last decade or so.

Although many factors contribute to high electricity prices across Australia, decisions made by governments over the years have set the National Electricity Market on the wrong course. These decisions were made at every step of the supply chain. To date, the federal government has not created an effective policy to ensure reliable, affordable, low-emissions electricity.

One key area of concern is the government green schemes. Over the past decade, these policies have accounted for a 16 per cent increase. For what these policies have cost, they were unsuccessful. The fact of the matter is, states like Queensland and Victoria are moving forward with state-based renewables and emissions targets that place the reliability of the power grid at risk. This is pushing up power bills.

There are also significant issues surrounding the current market structure. Going against the advice of the ACCC, the New South Wales (NSW) and Queensland governments made decisions that lead to concentrated markets. This resulted from the operation and ownership of generation assets. In Queensland, the generation assets of three businesses were consolidated into two, and similar circumstances were happening in NSW. For example, both generators owned by the company Macquarie Generation were solid to AGL. By not selling them to separate buyers, there was a missed opportunity for a more competitive market structure.

Sadly, more than a decade of policy failures have led to a mess with no quick solution.

How Glenco Can Help

Greater education and engagement are the first steps in being able to combat high electricity prices.

You can take action with energy management solutions.

Glenco will help you get the most out of your energy supply. Whether you are a homeowner or business owner, our goal is to enhance efficiency and sustainability, resulting in financial savings. These services are customer-tailored to your unique needs and energy usage.

Although many of the variables discussed above are currently out of your control, there are many steps you can take that are within your control. For example, you can conduct an energy audit to save power within your home or workplace. From greater energy tariff transparency to the implementation of energy reduction schemes, you can take back control.

Family-owned and operated, Glenco is here for you. Contact us to learn more about how you can start saving on your electricity bill today!

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