Cost of supplying electricity at an eight-year low

price graph with lightbulb (AER)
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Cheaper wholesale prices have reduced the cost of supplying electricity to households to the lowest it has been in eight years, and retailers have started to pass on the savings to consumers, the ACCC’s latest Electricity Market Report reveals.

The report lays out the various costs that retailers incurred in supplying electricity to customers in the National Electricity Market states of New South Wales (including ACT), Victoria, South-East Queensland, South Australia and Tasmania in 2019-20 and 2020-21.

“Our analysis of retailers’ cost data is valuable because it not only shows us what makes up the total figure on an electricity bill, it reveals whether they pass on cost reductions to consumers,” ACCC chair Rod Sims said.

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The report shows that the annual cost for a retailer to supply electricity to an average residential customer in the National Electricity Market in 2020-21 was $1,434, which is $128, or eight per cent, less than it was in 2018-19.

The average cost per unit of electricity supplied to residential customers in 2020-21 was 27.0c/kWh, which is the lowest it has been since 2013-14.

But despite these recent reductions, inflation-adjusted (real) electricity costs are still 32 per cent higher than they were in 2007-08, which is the earliest year the ACCC has data for.

“More renewable generation and lower fuel costs have brought down the wholesale price of electricity, and the Prohibiting Energy Market Misconduct laws are working because we can see the savings being passed down from generators, to retailers, to consumers,” Sims said.

“There is a time delay between wholesale prices falling and electricity bills declining due to the hedging contracts between generators and retailers. But we know there are more savings still to be passed on to consumers and businesses because we haven’t yet seen the lower prices in the wholesale market for electricity fully reflected in retailers’ costs.”

“Electricity prices are on a downward trend, but we want industry and governments to continue working on this because prices are still much higher than they were just over a decade ago.”

The ACCC enforces the Prohibiting Energy Market Misconduct laws that came into force in June 2020. The laws require electricity retailers to pass on significant and sustained cost reductions to customers.

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Electricity retailers commonly enter into hedging contracts several years in advance to manage volatility in wholesale spot market prices, which creates a time lag between spot market prices changing and retailers’ wholesale costs declining. 

“We anticipate that retailers’ wholesale electricity costs will continue to fall as older and more expensive hedging contracts expire. This should mean continued reductions in electricity prices for customers next year,” Sims said.

The ACCC has approached a number of electricity retailers who may not have adequately passed on cost savings to their customers and will continue to closely monitor and investigate the behaviour of retailers in the electricity market.

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