I’ve heard electricity prices are going down…and up. What’s the story?

If you’ve listened to the news lately (or just scrolled through social media) you may have heard conflicting reports about electricity prices. Some say they’re going down. Others suggest they’re going up.

Give me the quick version.

Some energy prices are rising in the short term, but they’re predicted to fall over the longer term. Basically, there are two big news stories about energy prices circulating right now. We’ll break them down in a minute, but in short:

  • one’s about the Victorian Default Offer (VDO), which will go up by 7.8% in 2020
  • the other’s about an energy pricing trend report, which predicts they’ll decrease by 2022.

Can you explain it all in English?

We’ll give it a shot.

Let’s start with the Victorian Default Offer (VDO) – which is going up in 2020

The VDO is a regulated price for electricity in Victoria, set by the Essential Services Commission. It’s the price Victorian energy retailers must give to particular customers* and it also acts as a reference price for energy retailers’ market offers.

To set the price, the Essential Services Commission takes into account a bunch of factors, including the main costs that make up a power bill: wholesale energy (generation), networks (the poles and wires), retail (service and billing) and environmental costs (government schemes).

For 2020, the regulator has increased the Victorian Default Offer by 7.8%, saying this price rise is mainly driven by higher wholesale energy prices and the costs of looking after the poles and wires.

Then there’s the report about prices coming down…by 2022.

The Australian Energy Market Commission (AEMC) is a body that provides expert policy advice to Australian Governments, and sets the rules in the National Electricity Market.

They’ve just released their latest energy price trends report. But this report is about projected price trends over a three year period. So it’s not about the here and now, and it’s not set in stone. (A lot can happen in three years.)

In a nutshell, the report predicts that national electricity prices will fall over the longer-term, starting from the 2020–21 financial year. This is mostly based on the expectation that we’ll see greater energy generation, which will increase the market supply.

As the AEMC Chairman, John Pierce, puts it: “More supply puts downward pressure on prices. But it’s important to note that over a decade of analysis we have seen trends change sharply in response to factors such as sudden generator closures and implementation of new policies. As such, all price project projections should be seen as just that, projections.”

The other thing to keep in mind is that the increased supply they’re talking about hasn’t arrived yet, so the projection of lower prices doesn’t apply to the current financial year. In fact, the report predicts prices will increase in all states other than Queensland in this financial year.

*The VDO must be given to residential and small business customers on standing offers in Victoria (unless they’re in an embedded network).