Spot prices point to mid-year energy relief for households

Households may get some relief from high electricity prices by the middle of the year as forward spot prices in the wholesale electricity market fall, and record output from rooftop solar installations change the country’s overall energy demand.

Consumers have reacted to several years of high inflation, turbocharged interest rates, and sharp cost-of-living increases by cutting spending, particularly around Christmas.

Forward prices for electricity fell in all regions for all forward quarters.
Forward prices for electricity fell in all regions for all forward quarters.Credit: Joe Armao

Retail turnover slid 2.7 per cent in December compared to November, data showed this week.

However, the Australian Energy Regulator’s (AER) latest Wholesale Markets 4Q2023 report released on Wednesday is cautiously optimistic that electricity prices may ease by the middle of this year, bringing some relief to struggling households.

“Forward prices for electricity fell in all regions for all forward quarters, reflecting mild spot price outcomes during the [December] quarter,” the report states.

But it will take time before those prices are reflected in consumers’ bills, the regulator said, as official figures show annual inflation has nearly halved in just 12 months, the sharpest drop in recent history.

Origin Energy, the country’s largest retailer and generator, said its electricity sales volumes increased 6 per cent over the same quarter (compared to 2022) after it added to customers and its users turned on air conditioners to counter the warmer summer weather.

The retailer also said the warm weather saw gas volumes slide, a fall that was partly offset by an increase the amount of gas used for power generation.

National electricity market spot prices averaged under $80 per megawatt hour over the three months to the end of December, the regulator said, well below levels seen in 2022.

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Mild weather, lower fuel costs, fewer coal supply issues and an increase in cheap wind and solar contributed to a slump in average annual wholesale electricity prices across the National Electricity Market in 2023, with wholesale prices falling between 44 and 64 per cent. Average annual east coast gas market spot prices also fell last year, by 43 per cent, it said.

Australian energy users were hit by a price shock in 2022 after the war in Ukraine set off a global energy crisis and failures in local power plants exacerbated supply issues.

Over the three months to last December, wholesale electricity prices fell in NSW, Victoria and South Australia, but they increased in Queensland and Tasmanian compared to the previous quarter. The fall in demand for electricity outside of Queensland was largely due to a 50 per cent jump in national output from rooftop and grid-scale solar which resulted in record minimum demand in Victoria and South Australia.

AER board member Jarrod Ball said the regulator was pleased to see average annual wholesale energy prices below the record highs of 2022.

“Although we saw increased electricity prices in some regions and a small increase across all regions in the gas market during the quarter, these remain significantly lower than those experienced in 2022 and closer to the levels seen at the end of 2021,” Ball said.

Tim Buckley, the director of think tank Climate Energy Finance, said consumers want real energy cost-of-living relief after two years of 20 per cent annual hikes in retail electricity prices, particularly now that wholesale prices halved last year.

“This follows the progressive unwinding of two years of hyperinflation in coal and gas commodity prices, both internationally and in our domestic energy markets,” Buckley said.

The regulator will decide in coming months on where to set the default market offer – a price cap on how much energy retailers can charge electricity consumers on their default plans.

Origin boss Frank Calabria said the company’s Australia Pacific liquid natural gas arm, which exports most of its output overseas, boosted production over the six months to December despite disruption from a broken down LNG ship at Curtis Island in late November.

Calabria, who spend much of last year negotiating his way through a failed multibillion dollar takeover bid by North American suitors, said Origin was progressing its strategy to grow renewables and storage, approving the $400 million construction of a large-scale battery at Mortlake Power Station.

Another major retailer, EnergyAustralia, announced a $1.1 billion impairment in the goodwill value of its customer business from a decline in retail margins, increased competition and higher capital costs. EnergyAustralia, owned by Hong Kong based CLP Group, said one-off, non-cash impairment was a prudent recognition of the structural changes in its operating environment.

“Retail margins as a percentage of residential bills were 2.3 per cent on average across the National Electricity Market in 2022–23. This contrasts with equivalent retail margins of 8.9 per cent in 2016–17,” managing director Mark Collette said.

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Source: Thanks smh.com