Electricity prices to soar after Hazelwood power station closure

Hazelwood Power Station
Hazelwood Power Station

Residential electricity prices are increasing due to decisions to close coal-fired power stations, according to the Australian Energy Market Commission’s annual report on household price trends.

Average electricity prices are expected to increase in most states and territories over the next two years as wholesale costs rise following the retirement of Hazelwood power station.

The AEMC’s 2016 Residential Electricity Price Trends report, released today, looks at what is driving changes in the underlying cost components of household electricity bills, and analyses the competitive market sectors of wholesale generation and retail; the regulated networks sector; and price implications from government environmental policies.

AEMC Chairman John Pierce said the report shows the retirement of coal-fired generators will increase residential electricity prices in most places.

“Prices are likely to rise in most parts of Australia over the next two years, but expected to fall slightly in South-East Queensland and Tasmania,” Mr Pierce said.

Wholesale costs are estimated to increase by between 5 per cent and 15 per cent each year over 2015/16 to 2018/19 in most states and territories, while demand remains flat.

The closure of the Hazelwood power station in Victoria will lead to wholesale price increases in most states, and the report estimates the national average residential bill will be $78 higher in 2018/19 due to Hazelwood retiring, compared with Hazelwood continuing to operate.

The report also shows significant variation in wholesale prices across the states.

“The changing generation mix, with more solar and wind entering the market and coal-fired generators retiring, means that electricity flows and wholesale prices are also changing,” Mr Pierce said.

“This is leading to greater variation in residential bills depending on where you live, and how much electricity you use.”

Electricity prices are also affected by the price for gas through gas-fired power stations, which are expected to play a larger role in the market in the future.

“Any future increase in the price of gas will result in higher input costs for generators, flowing through to higher costs in the wholesale electricity market,” said Mr Pierce.

“The report says gas prices are expected to remain flat but this is a volatile sector.”