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Why Do Electricity Prices Increase in Australia?

We’ve put together this thorough article to help you find out what causes electricity prices to change in Australia.

Just like with so many things in life, electricity prices change and generally they go up leaving consumers feeling frustrated. After all we all want to save money. But what’s really behind these changes in electricity prices? That’s where we are going to take a good look into in this comprehensive guide, we’ve put together just for you. It looks at factors that contribute to changes in electricity pricing. As a consumer you’ll be better informed and can also make better choices about your overall electricity usage.

Overview of Your Electricity Bill

First of all, we want you to understand the four main components that contribute to the pricing of your household electricity bill:

  • Wholesale costs (covering electricity being generated).
  • Network charges (paying for the delivery of electricity through power lines and poles).
  • Retail margin (paying for meter readings and other services eg: network upgrades).
  • Environmental schemes such as solar feed-in tariffs.

Factors that Cause Changes in Electricity Pricing

Changes to electricity pricing don’t just happen on their own accord without any reason behind them. So, as a consumer you have a right to know what causes such changes. Also, you should take a keen interest in finding out about them. You want to be an informed consumer especially in today’s digital age. Gone are the days of being ignorant and relying on just hearsay and word of mouth. Below we explore the main factors that contribute to changes in electricity pricing in Australia. Please note that some of these factors will also exist in other countries but some are specifically just for Australia.

Upgrades to the Network Affects Electricity Pricing

In recent years, most of the increase in electricity prices has been a result of upgrades to the electrical network. The Australian Government has invested a lot of money in improving the network to increase the quality of electricity and increase capacity to meet both demand and population growth. A lot of work has been carried out in recent times across Australian suburbs on the electrical poles and wires to make this happen. During COVID, some of the work came to a stop but not entirely and so now consumers need to front these upgrade costs. They are almost like a form of tax that you pay to ensure good electricity.

Paying for a Good Network Affects Electricity Pricing

Unlike in third world countries or countries where the internet isn’t very reliable and safe Australian consumers pay for a network that is generally reliable and safe. You have a network that is generally up to date and doesn’t have many brownouts or blackouts. Again, The Australian Government has invested a lot of money in making sure that the electrical network is of the highest standard and is one of the best in the world. Yearly it gets reviewed by government bodies to ensure that all is being done to make it as good as it can be.

Damage to the Network Affects Electricity Pricing

Damages to the network resulting from natural disasters like storms and bushfires affect overall network costs and hence the changes in pricing to your electricity. You may not have realised it but the recent devasting bushfires of 2020 did cause an electricity price increase. At least in areas most affected by the bushfires. So much damage was done to the poles and wires through the fires and so a lot of money has been and still is being spent in repairing the damage which is substantial and needs a long-term recovery plan. Due to Australia’s vulnerability to natural disasters like bushfires, network charges make up a much bigger part of electricity bills than in other countries.

The Australian bush fires that caused huge damange to power infrastructure.
The devastating bush fires in Australia have destroyed large parts of power infrastructure. The costs, resources and efforts to restore energy for areas is huge, unfortunately burdening the government, power companies and tax payers.

Investment in Solar Energy Affects Electricity Pricing

In recent years, the Australian Government has followed in the lead of many European countries and even the United States in investing in renewable energies like solar. South Australia leads the way in renewable energy in Australia with more than half of its electricity being generated from wind and solar. But other Australian states and territories have also invested in solar energy. In addition, there has been a push by the Australian Government to install solar panels in both homes and businesses across Australia. There is even a government scheme set up. Find out more about the solar programs available.

Such investments in solar energy although deemed good for our environment (clean energy source, sustainable, & reduces climate change) do come at a cost to the consumer. Expect to pay more for your electricity at least initially to cover the costs of the investment – further upgrades to the network to make it ‘solar friendly’. In the long term though you can expect to see a reduction in electricity pricing with solar as it’s all about reducing energy usage and hence your energy costs.

Australia’s Size and Population Affects Electricity Pricing

Australia’s vast size combined with its smaller population (currently at 25 million as of 2021) means that we have the world’s largest unified electricity network, which makes it expensive to operate, especially in remote areas like the Northern Territory. This contributes to price increases for the Australian consumer especially consumers living in remote and even rural areas where electrical work on the network is always harder to carry out. In addition, it can take the technicians and electrical engineers days on end just to reach these areas. Often, they need to stay the night as it’s not a simple trip back into town.

Deregulation Affects Electricity Pricing

In the early 2000’s most of Australia’s electricity (link to electricity piece once piece live) became deregulated except for Western Australia and Northern Territory. This meant that government legislation and laws regarding electricity pricing were removed. This allowed room for more energy providers coming onto the market which naturally allows for more pricing competition amongst them. This means that consumers have more choice now in shopping around for the best available price on the marketplace for electricity.

A comparison website like Cheap Bills does all the work for you in comparing different electricity offers and finding the best electricity price for you. Please note that despite deregulation there are still government authorities who monitor electricity, like the Australian Energy Regulator (AER) but unlike in the past they have less power electricity pricing.

Peak Demand Affects Electricity Pricing

Peak demand simply means the times of day when our electricity consumption is at its highest. During these times of higher consumption, you will pay more for your electricity. Peak demand varies across the different states and territories in Australia. Generally speaking, in Victoria peak demand for electricity is from 3pm to 9pm on weekdays. In recent times across Australia, we have seen an increase in the number, use and size of appliances like air conditioners, televisions, computers etc. This has naturally placed greater pressure on the electricity network further contributing to changes in electricity pricing.

Where You Live in Australia Affects Electricity Pricing

In Australia, electricity is governed individually by the different states and territories that pass their own laws and legislation. Remote areas and rural areas tend to pay more for their electricity given the infrastructure like the network is not as set up as in other areas. In addition, it is much harder to reach. But the Australian Government is working to have a more unified electricity pricing across the whole of Australia. Its also working to moderate its pricing to make it less expensive for consumers especially those from low-income households. There are discounts and incentives on offer of course both from government and individual energy providers to help with electricity prices. In recent times there have been put forward the following proposals by various Australian government bodies and legislators to keep electricity pricing in check:

  • Increased privatisation of state government-owned electricity networks.
  • Adjustments to environmental policies which affect wholesale energy costs.
  • Further retail price deregulation.
  • Further incentives and discounts.
  • Setting ‘reliability standards’. The value that customers get from a reliable network.
The Australian bush where electricity prices can increase in Australia.
Australia's vast size, small spread out population and remote areas make our electricity network expensive to operate.

Some Taxes Can Affect Electricity Pricing

Certain taxes introduced by the government can cause changes to electricity pricing. This was the case back in 2011 when the Gillard Labour minority government introduced the ‘carbon tax’. This was a tax to price carbon emissions from coal to help reduce the amount of carbon in the atmosphere and help in the fight against climate change. A lot of electricity is generated from coal. But consumers were having to pay more for their electricity. It led to an average 10% increase in retail household electricity prices, a 15% increase in industrial electricity prices and a 59% increase in wholesale electricity pricing. The carbon tax was scrapped in 2013 so it’s no longer in existence and has no bearing on electricity pricing.

We hope by now that you’ve learnt a lot about the factors that affect changes to electricity pricing. It’s always better to be an informed consumer when it comes to your electricity. To find out more about the best electricity deals on offer get in touch with our team. Contact the friendly Cheap Bills team today and we will take care of you.

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