Victorian electricity prices on the rise in 2018

Whilst most Australian’s have been enjoying a break at the end of 2017 and in the first weeks of 2018, Victorian electricity retailers have been busy updating their pricing. It will come as no surprise that electricity prices have gone up.

While not quite as dramatic in absolute terms as the 15-20% increase that hit NSW, SA and QLD in July 2017, Victorians still received a serious price surge. AGL, Origin and Energy Australia raised electricity usage rates by around 15% in Victoria from January 1. Most other retailers followed suit with increases in the range of 10-20%, undoubtedly to cover the higher cost of wholesale electricity with the closure of Hazelwood.

With politicians and media outlets in holiday mode, the Victorian increases passed with much less fanfare than the front page media frenzy that greeted the price rises last July for NSW, QLD and SA. There have been a few minor reductions in network charges with some retailers reducing supply charges. As of January 22nd 2018, there are still a couple of retailers who are yet to increase their market offers. For the time being this gives these providers an improvement in the competitiveness of the offers, but it’s unlikely to last.

Victorian’s power costs still better than most

Despite the increases in 2018, Victoria still offers the second cheapest electricity in Australia (behind the ACT) with anytime usage rates at or under 20 cents per kWh available from the cheapest electricity retailers. Combined with the mandated 11.3 cent feed-in tariff, Victorians are on a pretty good wicket compared to the other contestable states of Australia. SE QLD consumers are placed third, a little better off than average NSW consumers (22 and 25 cents respectively) with SA consumers fairing the worst of the contestable electricity markets with usage rates starting at 32 cents per kWh.

For those in Melbourne (CitiPower network) who have solar, as the song says – Don’t Worry Be Happy. When you’re paying 17 cents for brown coal juice to be transported to your home and paid 11.3 cents for excess gold (and green) solar juice off your roof, you’re going to end up with a pretty small bill if you’ve got a well-sized solar PV system and minimise your electricity use.

What’s next for Victoria’s electricity prices?

For those hoping for some relief from the ongoing price increases, there have been a few recent changes and announcements in Victoria which will be interesting to see unfold in 2018.

Firstly, there’s an increasing number of retailers offering “cost-reflective” demand tariffs for Victorian households. Given the rates offered and more specifically the demand charging method – requiring consumers to be highly attuned to their daily usage because that sets the costs for the whole billing period, I expect them to be ignored by consumers given their increased potential for bill shock. I think that peak demand management is a good thing for all electricity consumers, just not the way it’s been designed in Victoria. I’d suggest that Time Of Use billing offers a simpler and more appealing option for households to reduce peak usage. It’s far easier to make some behavioural and technology changes to take advantage of lower off-peak and shoulder electricity rates. If Victoria ever mandate demand tariffs in their current form expect the incidence of bill shock to go through the roof!

Secondly, and more importantly the Essential Services Commission have released a draft proposal to allow retailers to offer a tiered feed-in tariff in 2018-19. The goal presumably being to have solar owners use more of their solar power in the morning (when variable feed-in tariffs are lower) in order to increase exports into the grid in the afternoon peak. With the best anytime usage rates at 17-20 cents across Victoria, the 29 cent peak export rate should drive some behavioural change from solar owners trying to reduce or even zero out their electricity bills. The draft also proposes a reduction in the single feed-in tariff from 11.3 cents to 9.9 cents. That single rate seems pretty low to compared to the weighted average of the variable rates of 7.2c, 10.3c and 29.0c for off-peak, shoulder and peak rates. It will be interesting to see which retailers offer the variable FIT come 1st July 2018.

I’d like to see the Essential Services Commission provide some guidance to the retailers on how to design residential demand pricing that will actually have users change their behaviour for the greater good, reducing network costs for everyone.

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David Hiley