Why have electricity prices in Sydney been increasing?

In this fact sheet we take a look at the reasons behind the price increases and also at whats to come for future energy prices.

How much have electricity costs increased in Sydney?

How much your site’s electricity prices have increased in the past couple of years depends on a range of factors such as:

• Your network area (AusGrid, Endeavour, Essential Energy).
• The size of your site.
• Your metering configuration (time of use or general supply).
• Whether you are on default regulated rates or a market contract.

Here we take as an example a mid-rise apartment building located in the AusGrid network. Data assumes the building is on default regulated rates. The site consumes 100MWh pa (18% peak, 26% shoulder and 56% off peak) and has a peak demand of 22kW. The site is on the LoadSmart business tariff. The following table and figure shows annual costs for the site over the past 6 years from 2007/08 to 2012/13. In the last year alone costs have increased by 24%, this is largely due to a large increase in the Supply Access Charge. From 2007/08 to 2012/13 electricity costs for the site have increased by 136%. Data does not take into account inflation.

 

Why have prices increased?

The question of the recent electricity price increases in NSW is a complicated one. However, it can be broken down into two main causes:

1. Increased network costs.
2. Environmental charges (i.e. Carbon tax).

On the 1st of July 2012 average electricity prices for Energy Australia customers increased by 20.6%. IPART stated this price increase is due half to increased network costs and half due to the introduction of the carbon tax (IPART Media Release 12 April 2012).

By increased network costs we refer to an increase in spending on electricity network infrastructure, that is the poles and wires that transmit electricity from the generators to your local network, and then to your building. This increase in spending on infrastructure is passed directly onto electricity retailers and then on to the end customer.

The ‘gold-plating’ of electricity networks in NSW have recieved considerable attention in the media. Theres no question that in some areas 50 year old substations do need to be upgraded to cope with increasing usage and peak demand. However there is equally no question that AusGrid and TransGrid have over invested in infrastructure:

From 2004 to 2010 annual capital expenditure and increased operating expenditure for NSW transmission and distribution business doubled.
The IPART 2010 determination of regulated tariffs attributed >80% of price increases due to increased network charges.
In regards to environmental charges it is true that the introduction of the carbon tax on the 1st of July 2012 did increase prices. However it is interesting to note that in NSW the carbon tax accounts for only a half of all environmental charges on your electricity bill. There is a whole range of State and Federal environmental charges. (Data source: IPART Fact Sheet 13 June 2012, The impact of green schemes on regulated retail prices from 1 July 2012).

Future electricity costs in NSW

The big question is what’s going to happen to energy costs in the future?

The good news that it looks like NSW Electricity costs are stabilising. IPART has stated that in the AusGrid network area regulated prices will increase by 4.3% this July, which is a small increase compared to previous years. They also say that prices are expected to fall behind inflation in 2014 and reduce in real terms by 2015. Things aren’t looking quite as good for natural gas. IPART has stated natural gas costs will increase by 8.6% this July.

The following figure shows historical energy costs and predicted energy costs up till 2012. (Data source: UTS Institure for Sustainable Futures, NSW Business Energy Prices to 2020, Dec 2012).

The figure shows that electricity prices are expected to stabilise from 2012/13 up until 2020, however natural gas prices are forecast to keep increasing.