Electricity price increases explained

 

Mojo Power has been quiet of late with our marketing. We’re working extra hard to be a competitive energy retailer in Australia and providing access to renewable energy for all.  However, there are some BIG events that are out of our control. You’ve probably seen this in the media but he’s a brief recap…

The conflict in Ukraine is a really tragic situation and without getting political, one of the outcomes of which is worldwide supply chain problems and commodity prices have increased substantially and very quickly including coal and gas. Sadly, coal and gas are still the main sources of generating our energy.

At home, the floods in Queensland and NSW are devastating and have affected people, businesses, the economy and coal mining. 

With the demand and supply of coal in Australia being out of whack the wholesale price of energy has skyrocketed. Since January, even last year, the price of electricity has been steadily going up in leaps and bounds. We are talking about an increase of 200% in Queensland, NSW and Victoria.

Small energy retailers are largely at the mercy of buying from the grid. The result of all of this is that energy retailers who don’t own their own generating assets or have contracted operating assets, are paying extremely high prices. 

In the end, like all retailers, we’ve been forced to increase our customers’ rates.

Regulations

The Australian energy industry is one of the most regulated industries. The Default Market Offer (DMO) is set once a year by the Australian Energy Regulator (AER) and takes effect on 1 July. 

Retailers expect that the DMO is in line with the wholesale rates come 1 July. The rules are tough for small players in the market and if they withdraw from the market, this will ultimately give the consumer less choice, higher prices and coal fired power stations for longer.

Mojo tried to avoid increasing customer prices until this time but has now become unavoidable and will be reviewed again as soon as the DMO is released.

Angela Macdonald-Smith from the Australian Financial Review summarises the electricity retail situation perfectly in her article on 29 April 2022, “Energy retailers demand increase in retail tariffs”. (Article also extracted below).

You may have already read in the news that electricity prices will be increased, interest rates will rise so inflation can slow, wages need to rise to meet the cost of living and all in an election year. We are not politically aligned with any political party but we are pro-renewables and we see this and climate change as critical to Australia’s future.

So, this paints a very bleak picture for the retail energy market but before you start looking around, please read on.

We have a plan.

Mojo is on a mission to be net renewable by the end of 2022. We are a company with a purpose and we want to help our customers to get access to renewable energy whether you have solar panels or not.

What on earth does that mean you say?

It means we don’t own assets (power stations or generation) but we do have contracts to purchase the energy from solar farms. We are waiting on three more solar farms to be developed to achieve our mission. Then, we can control our wholesale prices better and offer renewable energy. 

We are also investing in new technologies and products that help our customers to save money. 

We look forward to sharing more information to our customers and the market in the near future.

Article from Australian Financial Review as referenced above:

Energy retailers demand increase in retail tariffs

"Small energy retailers largely are still at the mercy of buying from the grid and the wholesale price has skyrocketed – 200% in Victoria and 300% in NSW and QLD. This means energy retailers who don’t own their own generating assets are paying extremely high costs.
Angela Macdonald-Smith
Senior resources writer

Electricity suppliers fear some retailers will be sent to the wall if the national energy regulator doesn’t raise benchmark power prices by enough to reflect a huge surge in wholesale prices due to escalating prices for coal and gas amid the war in Ukraine.

A blowout in wholesale rates in recent weeks has opened up a big gap with household tariffs, pointing to the need for sharp increases in household energy bills that would stoke worries about the rapidly rising cost of living.

Power bills are set to head north again after big increases in wholesale prices. 

Sources point to wholesale prices in NSW that on Wednesday averaged $280 a megawatt-hour, almost six times the circa $50/MWh that consumers pay in their household bills.

The situation has sent electricity retailers into crisis mode, telling the regulator that standing offer power prices – known as the default market offer (DMO) – for 2022-23 need to be raised much more than proposed to avoid a squeeze that could cause some to collapse.

“The DMO should capture the most recent data on rising costs, and the regulator has to strike the right balance of finding a level that allows for healthy competition in the energy market while protecting vulnerable and disengaged customers,” said Alinta Energy chief executive Jeff Dimery.

Hamish Fitzsimmons, acting CEO of the Australian Energy Council, said if the price was set too low and retailers were unable to recover their costs, “there will be an incentive for retailers to lose customers, rather than win them”.

“This will have significant and detrimental impacts on competition, and it also runs the risk that some participants will exit the market,” he said.

‘You can control what you can control’: PM

Prime Minister Scott Morrison defended the government’s record on tackling power prices, pointing to the “big stick” legislation introduced to keep power companies accountable and the decision to build a new gas power plant at Kurri Kurri in the Hunter Valley. But the international price shock in energy is outside the government’s control.

 

“You can control what you can control, and that’s what we’ve done,” he said.

Retailers have been anxiously watching the situation in the UK, where 30 electricity retailers have collapsed since the start of 2021. That adds urgency to their lobbying of the Australian Energy Regulator for an increase in the maximum standing offer price that will kick in on July 1 in NSW, Queensland and South Australia.

Price announcement delayed

But news of the revised prices is not expected before the election on May 21, after federal Energy Minister Angus Taylor delayed the latest date for the AER to announce it from May 1 to May 25. The outlook for power prices has become a heated topic of debate since the campaign kicked off, with the Coalition and Labor sparring over the likely impact on bills of policies such as Labor’s $20 billion Rewiring the Nation grid expansion plan.

The Australian Energy Market Operator says the average wholesale power price in the March quarter rose 141 per cent from a year earlier to $87/MWh. Prices have rocketed higher again in April amid disruptions at coal power generators and stretched coal and gas markets.

“Wholesale prices across the NEM have risen significantly compared with the prior period driven by higher coal prices, lower solar output associated with the La Nina summer and baseload outages across the NEM,” Origin Energy chief executive Frank Calabria said in Origin’s March quarter report, which included a doubling in LNG revenues from a year earlier to $2.58 billion.

 

The draft default price proposed by the AER in February for 2022-23 included a 2 per cent increase in south-east Queensland in real terms, or a $30 a year rise, while prices in NSW and South Australia would decline, by up to 5.6 per cent in NSW.

But the market has since changed drastically due to the Ukraine war and disruptions to coal power generators on the east coast that has driven increased burning of gas.

“I can’t see any reason why the default market offer would not be higher than the draft decision, which was published ... before the Russian invasion of Ukraine and the resulting surge in commodity prices and, in turn, electricity futures prices,” said Dylan McConnell at the University of Melbourne’s Climate & Energy College.

EnergyAustralia said it would be “announcing pricing changes for many of our customers in the coming months”, with a spokeswoman adding that customers wanting assurances that their power bills would not rise can take up fixed-rate plans."

With Phillip Coorey