The Rise and Rise of Electricity Prices

According to a recent article on energymatters.com.au the price of electricity is going to rise dramatically over the next couple of years. The main culprit appears to be inflationary pressures and the cost of replacing ageing infrastructure to meet demand. Perhaps this will make the politicians make some tangible progress on taking Australia out of the fossil fuel cycle and invest heavily in renewables like solar thermal, geothermal and Solar PV for isolated locations where connecting to the grid consumes a lot of energy to put in place the infrastructure.

In June, the AEMC estimated residential electricity price increases of 30% by 2013. According to the latest AEMC report, the contribution to the revised projected 37% price increase from each component is as follows:

Transmission: 6.0%
Distribution: 33.6%
Wholesale: 40.2%
Retail: 12.1%
Feed-in tariff: 2.8%
LRET (Large Scale Renewable Energy Target: 3.8%
SRES (Small Scale Renewable Energy Scheme): -0.8%
Other state based schemes: 2.3%

While the AEMC’s findings clearly show small scale solar power is not the main villain in electricity price hikes over the next few years – less than 5% of the 37% national average – some in the media have again chosen to amplify its impact in the overall situation. Factors related to replacement of ageing infrastructure, gas-fired generation and the upcoming carbon tax appear to play a greater role.

The AEMC have also provided a breakdown of each state’s outlook.

Queensland – residential electricity prices forecast to jump by 42%, with the main drivers being the wholesale electricity component and distribution.

New South Wales – increase of 42 per cent forecast, again primarily due to distribution and wholesale electricity price increases, with the latter being the result of a price on carbon and increases in gas-fired generation capacity.

A.C.T – 42 per cent jump in nominal terms.

Victoria – 33% increase in residential electricity prices predicted.

Tasmania – 25 per cent electricity price hike forecast, mostly due to the wholesale component resulting from increased gas-fired generation and a minor wind component.

South Australia – residential electricity prices are forecast to increase by 36 per cent in nominal terms; driven in part by volatile demand, South Australia being a relatively small market and a high dependence on gas-fired power generation.

Western Australia – electricity supply to residential customers is forecast to increase by 30 per cent with over 80% of the hike due to increases in distribution and wholesale factors.

Northern Territory – The AEMC predicts Northern Territory residential electricity prices will rise 16 per cent in nominal terms between the base year and 2013-2014.