The federal government will provide up to $1.5 billion in electricity bill relief to households and small businesses from next April under a plan to shield the economy from a slated 56 per cent rise in power prices.

Prime Minister Anthony Albanese detailed a four-pronged plan to deal with Australia’s energy crisis on Friday afternoon, following a National Cabinet meeting where state and territory leaders agreed to temporary caps on wholesale coal and gas prices to take the sting out of soaring costs.

“We’re taking urgent action to shield Australian families from the worst impact of these [electricity] price hikes,” Mr Albanese said, while isolating with Covid in Canberra on Friday afternoon.

“We’re working hand in hand with our state and territory partners.”

Mr Albanese broke the power bill reduction plan down into four parts:

• Subsidies to lower-income households to reduce their power bills
• A $12 a gigajoule cap on wholesale gas prices for 12 months
• A $125 a tonne cap on wholesale coal prices in NSW and QLD
• A renewable energy capacity mechanism, unveiled on Thursday.

Electricity bill relief

Mr Albanese was unable to say on Friday how much support each household would get or how individual states and territories would implement the scheme with federal assistance.

However, government electricity subsidies will be paid to people receiving income support, such as people receiving JobSeeker, pensions and family tax benefits.

It will be paid through state governments and apply at the retailer level, so that discounts are applied before bills are sent to eligible households.

The temporary funding will begin from the second quarter of next year.

PM Anthony Albanese has unveiled a plan to deliver relief from electricity bills. Photo: TND

Mr Albanese wouldn’t be drawn on how much each household will get, or how many Australians will be eligible, but said support would vary by location under a “dollar for dollar” funding model with individual states.

“There is built into the mechanism and incentive so that
those states and territories that are looking to have the highest increase will have an incentive to put in more themselves as well,” the Prime Minister said.

Exerting ‘downward pressure’

The commonwealth will provide up to $1.5 billion in funding, but with states and territories to contribute total support could exceed $3 billion.

Mr Albanese was asked on Friday about a predicted 56 per cent rise in power bills over the next two years and how far the relief would go to reduce this impact on households, but he didn’t comment on specifics.

“What it will do is put downward pressure on those increases which were envisaged,” he said.

“If we sat back and didn’t take action, then we know that impact would occur as was predicted by Treasury.”

Treasurer Jim Chalmers has been tasked with working on the details of the scheme with state and territory treasurers, including which families will be eligible and how much support each household will receive.

It will be designed to work together with existing state-based electricity subsidy programs to maximise savings passed on to families in 2023.

Dr Chalmers will report back to National Cabinet early next year with a model for implementing the bill-relief scheme, Mr Albanese said.

Gas, coal prices capped

The other two prongs of the power bill relief plan agreed at National Cabinet on Friday will involve capping wholesale gas and coal prices.

Gas will be capped at $12 per gigajoule for 12 months, while coal prices will be capped at $125 per tonne across NSW and Queensland.

Mr Albanese said the intention of the price caps is to reduce pressure on electricity generators, which should limit the pass-through of costs to households and businesses over the next 12 months.

Parliament will be recalled in coming weeks to enact new laws creating a mandatory code of conduct for gas companies that will force them to comply with caps, while NSW will create its own code for coal mines.

It was agreed that Queensland will use existing direction powers to enact the cap on coal mines.

Experts have previously said capping wholesale gas and coal prices would help shield households from soaring costs, but that such a move risks creating other issues such as reduced supply in the medium term.