Millions of Australians will cop a nasty surprise on their next power bill as Australia’s energy crunch worsens, with retailers now passing on huge increases in wholesale electricity prices.
Some households have already seen their power bills rise by as much as 285 per cent, according to comparison company One Big Switch.
And the price hikes are only set to get worse, with Australia’s largest retailers yet to raise their rates before regulator-approved hikes to default market offers come into force on July 1.
Consumers are being urged to lock in fixed-price contracts to avoid the worst of the squeeze, but even these deals are starting to “disappear” this week, according to One Big Switch’s Joel Gibson.
“The window is closing fast – the opportunity is to switch to a fixed-price [deal] while you can,” he said.
Energy crunch delivers bill shock
The massive run-up in wholesale energy prices will affect most Australians over the next month.
Customers of smaller electricity retailers have felt the pain first, with players like Sumo Energy, Discover Energy and ReAmped Energy already passing on hikes of between 23 and 285 per cent.
Some of these retailers have even raised prices twice in as many weeks amid skyrocketing wholesale costs, prompting them to urge customers to leave their service and look for better deals elsewhere.
Mr Gibson, who has been collating price hike notices sent in by customers, said the largest retailers – AGL, Origin Energy and Energy Australia – have yet to raise their prices.
But he said it won’t be long before customers of these giants succumb to price hikes too.
“It may be another week or two before we see what the big retailers will do,” Mr Gibson said.
All retailers will pass through an increase in the price ceiling for electricity prices across Australia’s east coast from July 1, after regulators approved significant increases to default offers last week.
The decisions will add as much as $227 to the power bills of more than 700,000 households over 2022-23.
These hikes, which are paid directly by those who don’t or can’t negotiate a bespoke power deal, will also put upwards pressure on the broader market as they are used as a reference price by other retailers.
Why energy prices are rising
Monash University’s Professor Ariel Liebman said a mix of local and international factors had contributed to the energy crisis, including unplanned power station outages in Australia and the war in Ukraine’s displacement of Russia as a fossil fuel supplier to Europe.
But underlying factors have played a part, too. For example, the structure of Australia’s coal and gas markets allow companies to prioritise exporting their commodities globally over selling them locally.
On a global level, Professor Liebman said demand for fossil fuels has risen significantly in recent years as nations like China and India feed their fast-growing economies.
This has strained supplies of coal and gas globally, meaning the market was already in a tough spot even before Russia’s invasion of Ukraine saw its vast supplies of fossil fuels sanctioned by Europe and the US.
“We were pretty close to that marginal point, so when Russia’s capacity was withdrawn it tipped us over the edge,” Professor Liebman said.
Renewable energy supplies have helped stem the tide in Australia, but Professor Liebman explained that fossil fuels, which account for the majority of base load power, still maintain most of the pricing power in the market.
That means the cost of coal and gas are directly reflected in the energy prices that retailers pay, which are then gradually passed on to consumers.
How to navigate the squeeze
It’s difficult to escape paying more for electricity or gas as prices rise across the entire nation, but there are ways to limit the bill shock.
The first is to make sure you are getting a better deal than the default market offer (DMO), which is the highest price that retailers can charge customers.
As the name suggests, these deals represent your retailer’s default – they are given to people who don’t negotiate.
Much cheaper electricity plans can be found by using government-run energy comparison sites to explore the best deals on the market.
Some plans charge up to 25 per cent less than the default offer.
Mr Gibson said it may also be worth considering a fixed-price contract.
Most retailers offer these deals, which typically set your rates at a given price over a fixed 12-month period and insulate you from further price increases.
But households are being urged to get in quick, with Mr Gibson warning the number of attractive fixed-price deals are shrinking as prices rise.
“Households need to switch to a cheap fixed rate while they can, or keep switching each time they get a big hike,” he said.
“Doing nothing could cost you thousands of dollars.”