High Prices unlikely to drop

1 Nov 2018

Grattan Institute Director Tony Wood  has told Fairfax Media that prices are unlikely to drop soon, even with the Federal Government’s demand that retailers reduce prices in January.

Wholesale energy prices have surged in the last 6 months, with Victoria and New South Wales going up almost 40 percent since early June. Pricing is above $100/MWh in Victoria and South Australia for 2019 and New South Wales isn’t far behind at $95. Only Queensland remains steady at around $75/MWh.

NSW wholesale electricity prices for 2019 have surged since mid-year.

Wood said there’s a multitude of reasons wholesale prices have gone up since the start of October.

“Gas is the biggest issue, as its rising price has also set the price for the market,” he told Fairfax Media. “You’ve also got the issue that coal-fired power stations have been less reliable,”

And pricing has certainly jumped since August, when party room arguments over the National Energy Guarantee (NEG) forced the leadership spill.

Energy Minister, Angus Taylor has given an ultimatum to energy retailers to reduce their standing offer pricing on January 1, six months ahead of their proposed reforms (“Government looking to set “default pricing” to reduce bills ahead of Coag meeting“). The problem is that wholesale pricing is not dropping. With the drought affecting water levels at hydro dams, high gas pricing, delays in some wind and solar generation joining the grid and no new energy policy to replace the now defunct NEG, investor confidence has dropped and pricing is soaring.

There may be some relief on the horizon, with the ACCC today changing their forecasting for LNG spot pricing, predicting the export parity price may come down 20 percent next year. It’s been a mild start to Winter in the Northern Hemisphere, reducing demand for exported gas. While this may create some relief, the ACCC were quick to remind Fairfax that “LNG spot prices are highly volatile and can rise or fall in the short-term for a variety of reasons.”

Whether Taylor is unfazed by the high prices, or doesn’t know just how high they are is yet to be seen.

“The government expects the energy companies to pass on their wholesale savings in full to customers. The energy companies are now on notice,” Mr Taylor said.

“If the government is not satisfied that customers are getting a better, fairer deal, then further action will be taken.”