AER Points to Solar PV as a Factor in Electricity Price Hikes

pylons in an Australian sunset

Electricity prices in Queensland, NSW and South Australia will rise by as much as 23.9% in July, with the Australian Energy Regulator publishing its final Default Market Offer (DMO) determination for 2023-2024.

Regional Variation in Electricity Price Rises

How much of a rise you can expect depends on your distributor: in NSW, Ausgrid’s price will rise by 20.8%, Endeavour by 21.4% and Essential Energy by 20.8%; in south-east Queensland, Energex customers will see a 21.5% rise; and in South Australia, SAPN’s price will rise by 23.9%.

Impact on Default Market Offer Customers

The rise will affect around 600,000 customers who are on the DMO.

Insights from Australian Energy Regulator’s Release

In its media release, the AER said:

“The final DMO determination prices vary slightly from the draft announced in March, higher in some regions and lower in others, with wholesale energy costs continuing to be the predominant driver of increased retail electricity prices.”

The regulator said the prices in the determination “vary slightly” from the draft announced in March: up in some regions and down in others. It attributed the price rises predominantly to wholesale energy costs.

Further Adjustments and Considerations in Pricing

After the March draft, the AER said, it has factored in “updated wholesale, network, environmental schemes and retail costs”, as well as inflation forecasts.

It also reduced the retail allowance in NSW.

Regulator’s Approach and Consumer Protection

AER chair Clare Savage said: “In setting the DMO price this year we have sought to protect consumers from unjustifiably high prices and at the same time allow retailers to offer consumers better deals than their standard plans.

“No one wants to see rising prices, and we recognise this is a difficult time, that’s why it’s important for consumers to shop around for a better deal by using the free and independent bill comparison website www.energymadeeasy.gov.au and to check rebate and concession eligibility.”

The AER’s final determination can be downloaded here.

Factors Behind Rising Wholesale Contract Prices

The regulator said rising wholesale contract prices are rising partly because organisations signed expensive contracts before the government announced its intention to intervene in coal and gas prices.

The unreliability of old coal-fired generators created an expectation of wholesale price rises, the AER said, as did the closure of the Liddell Power Station in NSW in April.

Role of Solar PV in Electricity Price Changes

Solar PV also contributed to the price rises:

“Peakiness in the NSLP [net system load profile] is driven by the continued uptake of PV solar systems”, as well as grid PV, leading to spot prices falling below base contract prices in the middle of the day.

 

“This may require retailers to purchase cap contracts to cover high demand peak periods, which are much more expensive,” the determination said.

The AER said it will include the impact of solar PV on load profiles in future DMO decisions and will seek stakeholder input in the DMO 6 issues paper.

Impact of Extreme Weather and Isolation on SA’s Prices

November 2022’s extreme weather in South Australia (which led to rooftop PV shutdowns) impacted wholesale prices in that state.

The AER explained that SA’s isolation from the national market required extra spending on ancillary frequency control services, adding $1.63 per megawatt-hour to SA wholesale costs.

Victorian Customers to Face Significant Increase

Victorian customers will also take a 25% hit, with the Essential Services Commission releasing its default offer on Thursday. That increase represents around $352 annually for residential customers and $752 annually for small business customers.

About Richard Chirgwin

Joining the SolarQuotes blog team in 2019, Richard is a journalist with more than 30 years of experience covering a wide range of technology topics, including electronics, telecommunications, computing, science and solar. When not writing for us, he runs a solar-powered off-grid eco-resort in NSW’s blue mountains. Read Richard's full bio.

Comments

  1. Richard Courtenay says

    It will be a long hard road before there are enough massive batteries to soak up that 8 hours of sunlight and then share it around to charge your Tesla at night.
    Without coal and gas we will have, as the Germans say those Dunkel Flauter days when there is no sun and wind. I believe we can’t expect price reductions until the transmission and battery infrastructure is built and paid for. And then a few years later replace all the worn out batteries on panels, and don’t forget the windmills a bit later.
    The entrepreneurs who finance these things and take the financial risk aren’t building these things for love, its the profit motive for the shareholders.

    • Ian Thompson says

      Couldn’t agree more, Richard.

      What surprises me most, is the surprise many people have that building batteries, wind turbines, additional transmission infrastructure and solar actually costs something – they don’t simply grow on trees. And that maintenance and replacements at end-of-life also represent costs that have to be recovered as well.
      Also that the costs of rebates has to be paid for somehow – user pays!

      • Come on guys. FIT is 2-8 cents per kWh. This is then sold on for around 40 cents per kWh with no cost of production other than the poles and wires which are already there.
        Claims blaming the solar industry are the routine industry BS where they try to disguise their price gouging by blaming the victims. Woolies and Coles have also blamed higher costs for high food prices whilst they rake up double digit profit increases. It’s how industry works. Disgraceful.

  2. Liar, liar, pants on fire, comes to mind with a casual analysis of the justification of these price rises.
    Install a solar battery. Go completely off grid. This price increase just brought the payback period down to about 6 years.
    I’ve been running off grid for a year now. While you have to make some sacrifices, like not being able to run everything at once, it’s not as big a sacrifice as having to sell your first born to pay for this price hike.

    • George Kaplan says

      Wouldn’t that depend on your individual usage? Even with a 25% increase, that could be as little as another $150 a year. If it’s not just usage but also supply and metering charges, well make it $300. For those whose solar already covers most of the cost of their bill – or worse makes a profit, any switch to an off-grid battery option could actually cost them money, or at least result in a very very long repayment term e.g. 30 years. And that’s not including the essential fossil fuel backup generator for the er Dunkel Flauter days as Richard Courtenay mentioned.

      FWIW I’ve still something like 12 years to get a RoI via FiT for my solar system. Yes SQ promote the self consumption payoff model but that’s hard to calculate when blackouts every other month turn your data into garbage. One of these days I really should sit down and try to figure out approximately, but it’ll be a headache! :-\

    • Ron Sharma says

      I agree, my uncle in Fiji has Solar panels, batteries and wind power for night time.
      He is completely off the grid which is saving him connection and daily fees.
      He has a petrol generator just in case he wants to throw a party.

  3. Paul Tranter says

    Can this please be explained in plain English that most people outside of the energy industry can comprehend?

    And how does cheap solar power drive up prices?

    “Peakiness in the NSLP [net system load profile] is driven by the continued uptake of PV solar systems”, as well as grid PV, leading to spot prices falling below base contract prices in the middle of the day.

    “This may require retailers to purchase cap contracts to cover high demand peak periods, which are much more expensive,” the determination said.

    • Finn Peacock says

      Let’s start with the fact that electricity prices change a lot on the wholesale market – this is called the “spot price.” These prices can go really high or really low, depending on how much electricity is being used and how much is being produced. The price is generally highest during the evening peak – when solar drops off and usage climbs as people get home after work. As more solar is introduced into the grid, this generally makes the evening peak more expensive because *at the moment* we often need to use gas to meet this peak. This will change as we get more storage.

      Now, retailers – the companies that sell electricity to you and me – want protection from these peak prices. It’s risky for them because they can’t predict exactly how much they will have to pay for electricity. They’d rather know ahead of time what price they’ll be paying. This is where the cap contract comes in.

      A cap contract is a kind of deal that a retailer makes with the generator (the company producing the electricity). In this deal, the retailer agrees to buy a certain amount of electricity over a certain period of time. The special thing about a cap contract is that it comes with an insurance against high prices.

      Let’s say the agreed “cap” is $300 per megawatt-hour (MWh). If the spot price in the market goes over this cap, for example to $500/MWh, the generator will only charge the retailer the agreed $300/MWh, and pay the difference of $200/MWh themselves. This way, the retailer is protected from the spot price going too high.

      This is beneficial for the retailers because it helps them plan their finances better and offer stable prices to their customers. This is also beneficial for the generators because it gives them a guaranteed buyer for their electricity, helping them manage their operations better.

      However, the retailer pays a premium for this insurance against high prices, which is passed to the consumer.

      • Paul Tranter says

        Got it. Thanks Finn. ?

      • Electricity is part of the fabric of society. The only reason there ARE spot prices that are spectacular is because the electricity market has been privatized without any real government control of the cost passed through to the end user. All of these contracts are commercial in confidence, so we can never know. We were sold a pig in a bag. Normally when you buy a pig in a bag, when you get it home you can at least open the bag and find you’ve been duped. In this case, we’re not even allowed to open the bag to find out what’s in it and all we can do is surmise that the nasty smell coming out of it is another farm product.
        The electricity production and distribution privatisation case was sold to us on the basis that the government-run system, wasn’t run very well. That privatisation would foster competition and reduce real prices of electricity. This was partly due to the fact that the transparency of a fully run government scheme can be embarrassing for those charged with running them.
        Having outsourced an essential service, the government had no responsibility for it. It was simply commercial costs being passed on to the end users.
        This is why the peak spot prices are being passed on to the electricity resellers.
        You used to be able to protest at the job the government was doing by voting them out. The only way you can get rid of these pseudo-monopoly electricity suppliers and network distribution companies would be to become a major shareholder in them. A lot more difficult.
        So a lot of the NSW pain falls to the government in power at the time of the sale of these assets to pay for projects we didn’t have the money for at the time.
        This is much like overspending on your credit card with no real plan for how you’ll pay it back and then complaining when the credit card bill comes in asking for the money you’ve borrowed.
        Ideally you’d want all users to remain for a group solution if that would give you a group benefit, not another monopoly entrapment.

      • Alistair says

        Thanks Finn – that’s a really good, solid engineering reply – untangles the complicated bits without getting bogged down – nice!
        As engineers we’re also known for reducing complex things to a simple “rule-of-thumb”.
        In my case the retailer pays me 10c/kWh for my solar and sells it back to me (and others) for about 35c/kWh. Now if they can’t make money out of that then they should get out of the game!

  4. I hope someone smarter than me can do a deep delve into the claim rooftop solar increases Wholesale prices

    Anyway, I’m mostly off grid now and as the 2028 cutoff for Premium FiTs comes nearer will be considering my options to cut the cord and avoid the ludicrous ‘supply charge’

    Maybe an EV will influence my decision

  5. Considering the retailer / grid gang get incredibly low cost electrons from their customers pvc rooftop generators during the day. I see no justification for them complaining about the peak times.
    After the second last time our solar rebates went south, I asked my retailer agl why they didn’t increase my rebate ! Because my pvc electrons what are “different than their electrons! The chap laughed but … no change

  6. Do the retailers generally load this increase to the DMO onto their variable plans in full? Or just to their fixed rate plans? Trying to decide whether to fix now (which for my provider would be at the current DMO) or ride it out and see what increase hits my current variable tariff plan…

  7. If I look at the AEMO dashboard, April & May prices this year are much below last year in all states (Eg. Vic 2022 Avg $144MWh v 2023 Avg $83MWh).

    Also 2023 Q3 Futures are half to a third what the 2022 average prices were, so my question is, why are prices still going up?

    Is it retailers playing catch-up? Or is there an element of hedging rolling up and retailers having to sign new PPAs at higher rates? Or just plain old profiteering?

    • Hi Andrew, I posted a comment last Friday similar to what you are saying. I simply indicated that one-third of the energy is derived from Solar Roof Tops. Also there are two major coal fire stations being closed. As solar panel roof owners we get at least $600.00 tariff per annum as solar credits. But with this increase in electricity price we are going to lose that $600.00. Fed Govt is giving $500.00 to some households (not all) and then they receive the GST, Profit Tax from all Solar Roof Panel Holders. Who is the Fed Govt and Retailers trying to fool.
      My post was withdrawn from the blog.

  8. Ron Sharma says

    The Australian Energy Regulator AER is only favouring the Corporate Energy Sector. One-third of the energy is generated through Solar. If the Coal Power Stations have closed (one-third producer of energy) then on what basis the AER has reasons to allow for the increase. Similarly the one-third Solar Energy Producers (Households) tariffs should be raised with the same proportion of increase (20 to 30%).

    What clearly is recognised is that if the Solar Panel Holder (home owners) were saving $200.00 to $300.00 in Solar Tariff (when initial credits are paid back on every quarter) the Energy Corporate is now wanting that money to be depleted so that Home Owners don’t get that back anymore) and Energy Corporate increase their profits. This is called WHITE COLLAR STEALING.

    The Fed Govt is giving out $250.00 but in return they will make $1000.00 per annum as there will no longer be any tariff in credit for household Solar panel owners.

    The 2023 Budget has not increased the Govt Rebates but by 2023 all rebates will end. Therefore No point in putting solar panels when one helps the environment. THERE IS NO FREE LUNCH and NO FREE SUN AND NO FREE OPEN SPACE.

    Is it goes further to say that there are some sort of kickbacks that Ministers, AER and Energy Corporate CEOs are recieving to eat up the solar tariff credits earnt by Solar Panel House holds.

  9. Robert Tunn says

    It seems to me that the only way I can avoid all these price-rising issues is to go off-grid. I then fund my PVC and Batteries plus a backup generator with capital upfront and then avoid the inevitable increases.
    The economics of such a configuration must get closer to payback every year.

    Will the cheap renewables ever really deliver cheap power with this industry seeming to be able to introduce its own cost drivers at will? Seems to me the “pay to feed to the grid policy” will be the final death knell of cheap power.

    A great technology crippled by vested interests keeping elevated prices.

  10. This new round of hikes is going to lead more people to go off-grid or install solar. This is a good thing but we must educate these new adopters about the risks of some inverter tech. The chinese government linked Huawei inverters could pose a cyber security risk

    • Mark Holmes says

      I have had solar since early 2019 and it paid off in 2 years. Now with reduction if FiT from 16.3 to 5 cents and retailers sell it on for 5 times the FiT!, Coupled with increases anyway, I would not recommend installing solar, let alone a battery (which i won’t waste money on)
      Electricity is a fundamental requirement/right for homes and industry. I prefer that coal and gas stations remain open and reinstated.It just seems to me we have been sold a pup when it comes to rooftop solar etc.

  11. Forrest Gardener says

    In my estimation the intermittency of wind power would be far more difficult for electricity suppliers to plan for. I would be interested in how your explanation changes when that is taken into account.

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