If wholesale power prices have dropped, why are power bills still so high?

A new report shows that average wholesale prices for electricity have fallen. So, why are power bills still causing so much pain for Australian households?

The Australian Energy Market Operator has released data revealing the average wholesale price fell 41% to $63 a megawatt hour in the three months to September 30, compared to the previous quarter. In fact, prices are down 71% from the same period last year.

Price differences were also identified across the country as Tasmania recorded $29 a megawatt hour, compared to $92 a megawatt hour in South Australia. Western Australia still holds the highest prices in the country at $99 a megawatt hour. 

The eastern states' higher uptake of green energy, such as solar, may indicate why prices are higher in the west. Over the recorded period, renewable energy output made up almost 40% of supply, even reducing coal-fired generation to new lows.

In general, the Australian Energy Market Operator has indicated that greater renewable energy output, lower fossil fuel costs, and lessened demand due to benign weather may be a driving force behind the drop of wholesale power prices.

Why Aussies are still paying more for electricity

It’s no secret that electricity prices have skyrocketed, with the latest figures showing an increase of almost 50% on average since July 2022, according to ABC News. Power providers have been passing on higher costs to customers.

These higher costs have emerged as a result of the Russian invasion of Ukraine and the sanctioning of Russia’s oil and gas, unexpected outages and reductions in output at coal-fired power stations across Australia, as well as continued supply chain disruptions. 

While a reduction in wholesale power prices comes as welcome news, it is unlikely to provide immediate relief to homeowners. 

In an interview with the ABC, Victoria University Head of the Energy Policy Centre, Professor Bruce Mountain, said: "There's a big gap between what's known as the spot market, which is the prompt market … and prices that customers experience.”

"Most of the electricity sold to customers faces a price that has swapped the variable exposure in the spot market for a fixed price in the same way that most households will swap variable interest rates for fixed ones for varying periods of time,” Professor Mountain said. 

"And so … there's a lag between the change in spot prices and the change in the prices that customers see,” he said. 

He went on to predict that the country's bigger electricity providers “would be able to pad out their profits”.

Paying less for your energy bill

Customers may still be able to take advantage of discounts appearing in the market; as long as they’re willing to look for a better deal, and consider green energy options. 

Comparing your options

Complacency is a barrier that is limiting everyday Australians from accessing lower electricity prices. Being unwilling to switch providers and not comparing your options regularly may mean you are missing out on considerable savings - especially if you are on a fixed contract that is coming to an end.

While your provider may not have lowered their prices as significantly, others may have. It can be worthwhile comparing a range of electricity plans and providers to ensure you’re still on the best deal for your household. 

Renewable energy

It also may be worthwhile researching whether renewable energy options, such as installing solar panels on your home, are available to you. According to Solar Victoria, the average Victorian household could save up to $1,073 on their annual energy bill by installing solar rooftop panels. 

Not only can green energy options potentially save you on your energy bills, but it can help other Australian households as well. 

Australian Energy Market Operator's emerging markets and services executive general manager, Violette Mouchaileh, said: "Renewables also supplied a record 70% of total energy used over a half-hour period, with rooftop solar contributing 39%, again highlighting the likely benefit from coordinating rooftop solar and home batteries.”

"The pipeline of new renewables, if supported by firming generation – batteries, hydro and gas – and transmission, will help meet reliability gaps and share low-cost, low-emissions energy to homes and businesses,” said Ms Mouchaileh.