The purpose of the 2020 residential electricity price trends report is to provide governments and consumers with an understanding of:
• the cost components of the electricity supply chain that contribute to the overall price paid by residential consumers
• the expected trends in each of the cost components and overall prices over the period from 2019-20 to 2022-23.
This then indicates which components are expected to be the most important drivers of price changes. [For historical records, see the AEMC 2018 Report (here). An anti-wind group heavily criticized the 2018 report (here). Note that the Australian governments are encouraging renewable energy (wind and solar projects with batteries) via heavy incentives and allowances. For the Pros and Cons of the large wind and solar projects, see (here)].
The prices presented in this report are specific to the “representative consumer” and do not reflect the pricing outcomes for all residential consumers. The representative consumer is different for each jurisdiction and is determined using a representative annual consumption level either calculated from benchmark values provided by the Australian Energy Regulator (AER) or provided to the Australian Energy Market Commission (AEMC) by state and territory governments.
This report does not include the Northern Territory in the analysis. In previous years, the AEMC used the Territory Generation’s bundled wholesale load following price provided by the Department of Treasury and Finance (DTF) to perform the analysis. This price is no longer an accurate representation of wholesale costs in the DKIS due to the entry of independent generators to the Darwin-Katherine Interconnected System (DKIS). As such, publishing this price information would be misleading of wholesale electricity prices and could undermine the integrity of future data reporting and analysis.
Currently all commercial transactions in the Northern Territory’s electricity market occur through bilateral contracts between generators and retailers, and information related to these contracts is commercial in confidence. The DTF has informed the AEMC that there does not appear to be any price that can be used for publication without the risk of providing misleading information around the movement of wholesale prices in the DKIS or revealing information that could be detrimental to competition.
This report does not include analysis on Western Australia’s electricity prices. Western Australian residential electricity prices are set by the State Government as part of the annual State Budget process. The Western Australian Minister for Energy has advised that the Western Australian Government considers a broad range of factors in determining household electricity prices, including the impacts on electricity consumers. Given the impacts of COVID 19, the Western Australian Government has put a freeze on price changes in 2020-21 and provided additional financial support to these electricity consumers throughout 2020. As these policy decisions cannot be accounted for in preparation of the Residential Electricity Price Trends Australian Energy Market Commission report, the Western Australian Government has requested that Western Australia not be included in this report.
This report does not provide and should not be regarded as providing forecasts of future prices including those which are set by jurisdictional regulations or governments. The prices and trends in the report are based on:
• modelling of wholesale costs using available information up until 2 November 2020
• network cost information that was publicly available up until 17 November 2020. Regulated network costs may vary because of AER decisions on contingent project applications.
It is important to note that the results are limited by the data used and the underlying assumptions made in determining costs, prices and trends.
Information on prices in future years may differ from estimated outcomes as they are sensitive to uncertainties and changes in the factors that drive prices across the electricity supply chain. These include changes in:
• representative energy consumption by consumers across states and territories
• network costs following the finalization of revenue determinations which remain the subject of ongoing regulatory or legal processes
• government policies, such as those related to jurisdictional environmental policy schemes
• jurisdictions reviewing their approaches to retail price deregulation for the setting of regulated prices.
This is the eleventh annual residential electricity price trends report prepared by the Australian Energy Market Commission (AEMC) at the request of the ministerial forum of Energy Ministers (formerly COAG Energy Council).
The 2020 residential electricity price trends report (2020 report) identifies changes in the energy supply chain cost components that are driving residential electricity prices and bills for each Australian state and territory (excluding the Northern Territory3 and Western Australia4 ), and nationally, from 2019-20 to 2022-23 (the reporting period). By focusing on trends in the cost drivers of prices and bills, the report helps to focus attention on key sectoral issues.
Residential electricity bills are calculated by multiplying the consumption of the representative consumer in each jurisdiction by the price they pay for electricity. The representative consumer’s consumption is either based on the most common consumption profile of consumers in each jurisdiction, or a quantity provided by the jurisdictional government. The prices used for each jurisdiction are the average of the lowest representative offer from each retailer, weighted by market share. The national results are then determined by weighting the jurisdictional price and bill outcomes by the number of consumers in each state or territory. It is important to note that prices include both variable and fixed charges.
Given this methodology, it is important to recognize that the pricing and billing outcomes do not constitute specific pricing and billing forecasts, and that the results may not reflect the actual prices and bills that consumers pay. Actual price movements will be influenced by how retailers compete, the dynamics of the wholesale spot and contract markets, the outcome of network regulatory decisions, and changes in policy and legislation. However, the results do reflect movements in the underlying costs of service provision and are a guide to pricing and bill directions based on current expectations, policy and legislation.
We also provide a comparison of expected trends from past reports with the actual historical trends, together with the major factors that caused them to diverge.
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