Compare Electricity Victoria

How is the Victorian electricity price determined?

As you’ve just read, the price of electricity covers the cost of the generator, distributor and retailer. But there’s more.

The other factors that determine your bill are the wholesale cost of electricity, where you live and the time of day. The price of the Victorian Default Offer (VDO) also plays a pivotal role in determining the final cost of electricity. The main factors are discussed in more detail below.

• Wholesale electricity prices

  The wholesale price of electricity has a direct impact on how much the retailers need to charge customers. If the cost of wholesale electricity rises, it follows that retailers need to increase their electricity rates to remain profitable.

  Several factors can affect the wholesale price of electricity in Victoria:

  • The cost of coal – 70% of Victoria’s power is generated using fossil fuels. Coal powered power stations produce the majority of electricity. So when the price of coal increases, the cost of generating power goes up too.
    Coal prices have increased for several reasons. COVID-19 border restrictions caused global distribution issues and flooding and bushfires led to domestic problems. In 2022, the war in Ukraine caused the global cost of coal to rise, as countries placed sanctions on Russian coal.
  
  
  
  • Limited supply – the supply of power to the east coast has suffered due to power station outages in NSW and QLD. Most significantly, the explosion in the Callide C Unit 4 at the Callide Power Station in Mount Murchison limited electricity generation. The generator is still out of action and predicted to be unavailable until mid-way through 2023.
  
  
  
  • Power station closures – several power stations have closed as part of the transition to renewable energy sources, with more closures planned. Unfortunately, the slow uptake of renewables means the closures have left a deficit in supply and forced prices upwards.
    When Hazelwood Power Station closed in March 2017, wholesale prices in Victoria jumped up 85% compared to 2016. With more closures planned, this impact is likely to be felt long term. The Yallourn power station in Victoria’s Latrobe Valley will close in mid-2028, four years ahead of schedule. Loy Yang A is planned to close in 2040.
  
  
  
  • Slow implementation of renewables – the decrease in coal-fired power is being offset by Australia’s commitment to green energy. However, the transition has been slower than planned, leaving a gap in supply.
    The Clean Energy Council says that frequent policy changes, market reforms, grid connection issues and network constraints have caused the delays.
    Mr Koenders, head of energy research at Barrenjoey, said “until we get to that endpoint where there is sufficient hydro build-out and battery storage as per government targets, we are going to continue to face increased volatility in the electricity market”.
  
  
  
  • Increased demand for power – adding to the supply shortage issue, power demand has shot up. Warm temperatures and heatwaves caused a sharp increase in electricity usage in summer. In addition, the re-opening of workplaces after the lockdowns meant more energy being used in the CBD.
• Metro vs Regional energy prices

  Part of your electricity bill is based on the cost of transporting electricity to your area. It follows that customers in hard to reach, regional areas pay more for their electricity. This includes the cost of building and maintaining the poles and wires that make up the electricity network in your area.

  In Victoria, there are five distribution network areas. Customers in each different area can expect to pay a different rate for their electricity.

  The cheapest distribution networks are Citipower, United Energy and Jemena, covering central parts of Melbourne and metro areas. Customers in regional areas can expect to pay more under the Powercor and Ausnet networks.

  Customers on the cheapest Citipower rates pay up to $200 less per year than those in the most expensive Powercor network.

• Time of Use (ToU) Tariffs

  During times of peak consumption, Victorians pay more for their electricity usage. Peak demand times are between 3 pm and 9 pm when people are using cooling or heating systems, televisions, lights and other household appliances. The cold Victorian winters can also cause peak demand for the use of heating.

  In recent years, peak demand has grown due to population growth and the increase in technological use. As a result, electricity distribution companies needed to build more infrastructure, which in turn has increased electricity prices for consumers.

  The amount you pay for your electricity at different times of day depends on the rate agreed in your plan. There are three types of tariffs:

  • Single rate – customers on a single rate tariff pay the same rate for electricity, regardless of the time of day.
  • Time of Use – these tariffs use a smart meter to track how much electricity is consumed during off-peak times. Customers on a Time of Use tariff pay a lower rate for electricity used during off-peak periods.
  • Controlled load – this tariff charges a lower rate for certain appliances that are separately metered. Controlled loads are common for items such as hot water systems or underfloor heating. These appliances generally run during off-peak times to access the lower rates.
• The Victorian Default Offer (VDO)

  The Victorian government deregulated electricity pricing in 2009. This allows providers to set their own prices and as a result, electricity prices are very competitive in Victoria.

  However, following the deregulation, it was found that retailers were charging long-standing customers an expensive ‘standing offer’. This meant that people not actively engaged in the market were paying hundreds of dollars more than they should.

  In response to this finding, the Victorian government introduced the Victorian Default Offer. This is a government regulated price that sets the maximum cost of electricity in the state. Retailers also have a range of ‘market offers’, which are usually better deals than the VDO. To avoid paying too much for electricity, find out if your plan is the VDO or a market offer.

  You can read all about the VDO here.