With the cost of electricity front of mind for many Victorians, the recent changes to pricing taking effect from the 1st of January has raised questions as to what is actually causing these changes.
At the start of each year in Victoria, electricity retailers review the changes within the industry and make decisions on how this will impact the end customers.
Why are electricity prices changing?
With Victorian customers feeling the pinch of electricity price changes, there’s been a lot of finger pointing as to who is really to blame. The reality is that rising wholesale prices are the culprit.
Wholesale prices depend on a balance between supply and demand. Currently demand from the public is putting pressure on supply and as all economists will confirm this leads to prices increasing.
To produce enough electricity to meet the needs of customers there are three main sources of electricity generation: coal generators, natural gas and renewable energy recourses. If there are any changes to one of these areas, the other recourses must produce more electricity to close the gap in supply.
On the 31st of March 2017 the Hazelwood coal power generator in Latrobe Valley closed its doors, making it the ninth coal power generator to close since 2012. This was a shock to the industry and dramatically affected the supply of electricity produced from coal. Hazelwood had a generation capacity of 1,600 MW and contributed heavily to Victoria’s daily scheduled generating capacity of around 7000 MW, other generators will now have to make up for this shortfall. With the closure of Hazelwood and a dramatic decrease in production, other coal generators now have the advantage of using the situation to dictate how much electricity is produced and how much this is sold for. This oligopoly has led to wholesale prices increasing.
With a decrease in electricity produced from coal resources, natural gas and renewable energy generation are the next point of call to pick up the slack. The reality is, these sectors are also seeing their own problems in supply that are leading to increasing prices.
Natural gas is used as fuel for electricity generation and has flagged its own issues in supply. The price tag of natural gas in Australia is increasing, with gas companies blaming the lack of exploration licenses for more sources of supply. With Australia being the second largest exporter of natural gas in the world, the rate of sending this resource overseas has increased, leaving the resources available at home falling short. This has pushed wholesale prices up as the cost of natural gas locally has increased.
Renewable energy is promoted as the hero of electricity generation. The sector is expanding, but isn’t growing fast enough to close the gap in supply. In Victoria only 17% of electricity generation comes from renewable resources. While this is set to increase to 25% by 2020, this will not come fast enough. When the wind stops blowing and the sun doesn’t shine, intermittent generation from renewable resources won’t close the gap in supply. This leaves the dispatchable base load power from coal and natural gas to cover supply and set wholesale prices.
How do these changes affect customer invoices?
A residential electricity invoice is made up of four components: wholesale market costs, network charges, government charges and retail charges.
The Wholesale Market Cost accounts for 30-40 per cent of customers invoices. It is the significant increases to the wholesale market costs and lack of supply that have resulted in changes seen by consumers on invoices from the 1st of January.
Retailers bid and purchase this generated electricity from the wholesale market. Any changes in wholesale prices directly impact the customer.
Network charges are the cost of delivering electricity to your home by the States network of power poles and wiring. This portion makes up 40-50 per cent of a customers invoice.
The network distributers are responsible for maintaining, upgrades or new installations for the current network by which electricity reaches homes and businesses.
Government charges go towards the funding of the Commonwealth Government’s Renewable Energy schemes, the various Victorian feed-in-tariff schemes and the Victorian Energy Upgrades scheme. Government charges make up 5-15 per cent of a customers invoice.
The Retail portion (or residual component) of customers invoices makes up approximately 8 per cent in most jurisdictions. This charge covers the service being provided to you by your electricity provider, this includes managing your account, providing customer service, billing, market admin operating costs and allowing for bad debt.
(source: AEMO 2017 Residential price trends)
How we can help:
From the 1st of January 2018 electricity rate changes took effect from all electricity retailers, WINconnect also changed its rates for Victorian customers with these differing for each distribution zone.
At WINconnect we know that price increases of essential services such as electricity can affect the budgeting and hip pocket of customers.
This is why we offer a multitude of services to ensure we can work with our customers to avoid financial difficulty, such as:
- Energy charges that are no greater than the standing offer prices a local area retailer can charge contracted customers.
- Monthly billing for better budgeting in line with monthly pay cycles.
- Direct Debit options with no surcharges.
- An on-site credit management team to help with flexible payment options if you are experiencing financial difficulty.
- Our WINassist program which helps customers experiencing short-term or long-term hardship.
- No Lock-in contracts.
- Provide customers with advice on how to use electricity more efficiently.
For further information on our rates or service information, please contact our friendly customer service team on 1300 791 970 or email us at email@example.com