{"id":10497,"date":"2017-05-10T11:30:40","date_gmt":"2017-05-10T01:00:40","guid":{"rendered":"https:\/\/www.solarquotes.com.au\/blog\/?p=10497"},"modified":"2024-01-25T16:04:58","modified_gmt":"2024-01-25T06:34:58","slug":"electricity-prices-to-rise","status":"publish","type":"post","link":"https:\/\/www.solarquotes.com.au\/blog\/electricity-prices-to-rise\/","title":{"rendered":"Solar Owners Secure As Electricity Prices & Solar Feed-In Tariffs Rise"},"content":{"rendered":"
\"solar

If you own a good-sized solar power system, rising electricity prices are not a worry, in fact some\u00a0solar owners will see their bills decrease thanks to rising feed-in-tariffs.<\/p><\/div>\n

Australians don’t pay the highest electricity prices in the world, but we’re working on it.\u00a0 <\/p>\n

For those embittered by Australia’s failure to take first place in the ‘pay-through-the-nose sweepstakes’, you’ll be glad to know further price increases on their way could allow Australia to become number one for most expensive electricity in the world!1<\/a><\/sup><\/p>\n

The reason electricity prices will\u00a0be hiked yet again is because wholesale prices have soared2<\/a><\/sup> and electricity retailers are going to pass this on to consumers.\u00a0 I’m sure they don’t want to, but when businesses are faced with a choice between making more money or not making more money, for some reason they always seem to go for more money.<\/p>\n

The removal of subsidies in WA\u00a0will lead to\u00a0residential electricity prices rising\u00a0by around 21% while in NSW,\u00a0Queensland, Victoria, and South Australia\u00a0soaring wholesale electricity prices will likely increase household bills by 20% or more, with NSW copping the biggest hike.\u00a0 The only silver lining is the pain will be spread out over the next 2 to 3 years3<\/a><\/sup> and a large part of Victoria’s increase already occurred at the start of this year.<\/p>\n

Because wholesale electricity prices have risen, solar feed-in tariffs will also increase, as wholesale prices\u00a0are what feed-in tariffs\u00a0are supposed to reflect.\u00a0 The feed-in tariff in Victoria will rise to a minimum of 11.3 cents on the first of July and feed-in tariffs of 10 cents or more are now available in NSW, QLD, SA, and the ACT. And there is talk of NSW going even higher<\/a> in July.<\/p>\n

Because both grid electricity and feed-in tariffs are going up, rooftop solar goes from being an amazing investment to a complete no brainer for almost anyone who owns a roof.\u00a0 It not only increases savings from any\u00a0self consumed solar electricity, but\u00a0increases the\u00a0credits from selling any\u00a0surplus solar\u00a0back into the grid. A double whammy that increases\u00a0solar owners’ savings\u00a0even more.<\/p>\n

But those who can’t install rooftop solar, which includes the poorest in our society, are going to get hurt.<\/p>\n

WA Residential Prices Ready To Rocket<\/h2>\n

Because of the massive distance between Western Australia and the National Electricity Market (NEM<\/a>) made up of the eastern states and South Australia, WA hasn’t\u00a0suffered the same increase in wholesale electricity prices.\u00a0 But West Australians will still be screwed over because their State government is reducing the subsidy that hides the real cost of grid electricity from households and so their bills will\u00a0rise by an estimated 7% a year<\/a> over the next three years.<\/p>\n

NT Price Increases Won’t Be So Bad<\/h2>\n

The Northern Territory has its own separate itty bitty grid4<\/a><\/sup>, or rather, a collection of separate little grids.\u00a0 Fortunately, the Flop End5<\/a><\/sup> will be mostly protected from electricity price increases and, despite some problems<\/a>, their bills may rise by less than 5% over the next two years.<\/p>\n

The ACT Is Protected By Its 100% Renewable Electricity Target<\/h2>\n

Because the ACT has locked in long term electricity prices with renewable Power Purchase Agreements in preparation for meeting their 2020 100% renewable electricity target<\/a>, they are reasonably well protected from electricity price increases and so should suffer a much smaller increase than NSW – the state they trapped\u00a0inside.<\/p>\n

Prices In NSW, QLD, SA, And VIC Will Soar<\/h2>\n

If National Electricity Market wholesale prices lived in a house, they’d need someone to come and fix the holes in the roof, because that’s what they’ve smashed through.<\/p>\n

Unfortunately, it is not possible to know real wholesale prices in Australia.\u00a0 This is because a great deal of electricity is traded via contracts and those contracts have secret prices.\u00a0 But we can look at spot prices which is the how much electricity is traded for outside of contracts.\u00a0 Spot prices average slightly higher than wholesale prices.\u00a0 If they didn’t, there would be no point in having contracts.\u00a0 They also jump around a lot more.\u00a0 But they do reflect wholesale prices and are the most accurate indicator available.<\/p>\n

Average wholesale spot prices have soared in NSW, QLD, SA, and VIC, as the following skillfully made graph displays6<\/a><\/sup>.\u00a0 It shows the average wholesale spot prices in cents per kilowatt-hour in April last year compared to April this year:<\/p>\n

\"April<\/p>\n

As you can see, in South Australia and Victoria average wholesale spot prices have more than doubled.<\/p>\n

Tasmania is not included in the graph because in April last year they were in the middle of an energy crisis<\/a> thanks to having drained their hydroelectric dams just before they were hit by both a drought and a busted Basslink<\/a> interconnector cable that pushed their average wholesale spot prices up above 23 cents a kilowatt-hour.\u00a0 But if we instead look at April 2015 we see the average wholesale spot price was 4.1 cents which was less than one-third the 13.1 cents it was this April.<\/p>\n

Refining The Figures<\/h2>\n

There is a considerable amount of variation in average wholesale electricity spot prices from month to month and year to year.\u00a0 To get a more accurate picture of how they have increased I have taken the average wholesale spot price for February, March, and April over the previous three years and compared it with the average for those three months this year.\u00a0 In cents per kilowatt-hour this gives:<\/p>\n

\"Average<\/p>\n

Clearly, there have been massive increases everywhere except Tasmania on account of their energy crisis, with the average spot price more than tripling in SA.<\/p>\n

One interesting thing about the graph is it shows during the previous three years the average spot price in renewable heavy South Australia was considerably lower than in coal dominated Queensland.\u00a0 This is not what you would expect if you believe coal is cheap and renewables expensive, as the Coal-ition keeps telling us<\/a>.<\/p>\n

The difference between the average of the previous three years and the last three months in cents per kilowatt-hour comes to:<\/p>\n

\"Cents<\/h2>\n

Fortunately, we won’t\u00a0be charged this much extra per kilowatt-hour in the short term.\u00a0 But if wholesale electricity prices remain high enough for long enough, we will be.<\/p>\n

The Future Is Far From Perfect<\/h2>\n

Normally when wholesale spot prices soar like this it is not unreasonable to assume it is just a blip and things will return to normal soon enough.\u00a0 Unfortunately, this is very unlikely to be the case.\u00a0 According to the electricity futures market<\/a>, wholesale electricity prices will remain high for the next two years before we see any decrease and even then they should\u00a0remain far above average for at least three years after that.<\/p>\n

Morgan Stanley<\/a> estimates7<\/a><\/sup> residential electricity prices in NSW will increase by 20-25% and Victoria’s will rise by around 20% or more.<\/p>\n

As Victoria’s residential electricity prices increased by almost 10% at the start of this year they are likely to see a further increase of around 10%.<\/p>\n

Looking at future market prices, I see that both Queensland and South Australia are also likely to suffer large increases, with South Australia getting the worst of it.<\/p>\n

The Price Hike Won’t Happen All At Once<\/h2>\n

Victorian electricity prices go up at the start of the year8<\/a><\/sup>, so they’ve already had a considerable increase, while other states, except possibly Tasmania, will be hit with large increases from the first of July.\u00a0 The slightly good news is the hikes won’t happen all at once and will probably spread out over two or three years.\u00a0 After that, prices will remain high until electricity retailers have recovered all the money they are entitled to under law and not a dollar less.<\/p>\n

The reason why we’re not being hit with huge increase all at once is because retailers fear angry citizens.\u00a0 They don’t want people demanding politicians do their job and run the country more efficiently.\u00a0 They are well aware that if electricity production and distribution was nationalized, as it was decades ago, it could potentially halve the cost of providing electricity to households and leave electricity generators and retailers with only limited opportunities for profit.\u00a0 They also don’t want to create an even larger rush to install rooftop solar than what is already occurring<\/a>.<\/p>\n

Fixed Costs And Charges Per Kilowatt-Hour<\/h2>\n

As the cost of wholesale electricity has increased it seems reasonable to expect households to be hit with a straight increase in the charge per kilowatt-hour used.\u00a0 But electricity retailers may be much more devious than this and pass on some of the price increase in the form of higher fixed costs<\/a>.\u00a0 There are 3 main reasons why they prefer to raise fixed costs:<\/p>\n