May 15, 2020
We've been seeing price increases across the Australian electricity markets for so long that it feels like that's the only way things can go.
But energy pricing is subject to the same principles of supply and demand as any other product or service. We're on the cusp of seeing new supply entering the market, and we're also seeing plateauing and falling demand. That can mean only one thing, electricity rates will head south. The question is, when will you start to see that reflected in your own bill?
Retailers will move at their own speed to pass on these savings, and the slower they act the more profitable their retail business...
Why wait for your own retailer to pass through the price reductions when you can set up your bill monitoring now and keep switching to a better deal as the rates start to fall?
The Australian Energy Market Operator (AEMO) publishes the Quarterly Energy Dynamics report. For Q1 2020 it shows that average wholesale electricity prices were down a whopping 49% vs Q1 of 2019. This represents the lowest quarterly average price since Q4 2016.
AEMO identified four main drivers of this price decrease:
There is no crystal ball for energy pricing, but the electricity futures market gives us the best insights into expected price changes. The price of electricity futures contracts continued to decline during Q1 2020, with Calendar 2021 future prices finishing the quarter at multi year lows across all regions. These futures price reductions were influenced by lower spot electricity and gas prices, expectations of further increases in renewables and rooftop PV, and concerns about the impact of COVID-19 on demand.
Wholesale price reduction is all well and good, but Bill Hero subscribers are interested in retail prices.
Wholesale generation costs typically represent only about 10% - 20% of your retail bill. So even though wholesale prices came down nearly 50% in the last quarter, this does not imply we can expect the same reduction in retail prices. What we can expect is up to about 15% average reduction to retail bills, assuming that the full benefit of the wholesale price reduction is passed through to retail prices.
In an efficient market, this is what you'd expect to happen, we'll see how it plays out in the Australian retail electricity confusopoly market.
With the wholesale rates coming down, it's more important than ever to stay on top of your electricity bills and make sure you get the maximum benefit as soon as possible. Retailers will decide if and when to pass through the price reductions at different times, so it may make sense to switch more than once over the coming months to make sure you get the best benefits.
That's boring and hard, unless you have Bill Hero doing the work for you. We stay on top of the market, and we check every bill for you, to make sure you're always on the best deal.