Energy affordability is emerging as a major challenge in Australia’s transitioning energy market, with consumers to feel the effects of a wholesale market under pressure and likely increases in network costs, a new Australian Energy Regulator (AER) report reveals.
AER Chair Ms Clare Savage said the State of the Energy Market 2022 report, released today, looks back on a year of change and market ‘firsts’ in Australia’s east coast wholesale and retail gas and electricity markets.
Wholesale prices were relatively low at the start of 2021, but a perfect storm of supply constraints, high international coal and gas prices, and increased demand caused costs to surge, resulting in record and persistent high prices and an unprecedented suspension of the entire wholesale electricity spot market in June 2022.
The report shows just how strongly the gas and electricity markets are interconnected, with gas-powered electricity generation playing a significant stop-gap role in recent months, at a time of high gas prices.
Households and businesses have continued to install record volumes of rooftop solar capacity every year since 2015, reducing the volume of electricity households need to buy from the grid and contributing to a record minimum National Electricity Market (NEM)-wide demand of 13,924 MW set on Sunday 17 October 2021, almost 9% lower than the record in 2020.
Rooftop systems in the NEM now total more than 15GW of capacity, which is about one-fifth of the NEM’s total generation capacity. Ms Savage said it is declining energy affordability that is increasingly concerning for consumers.
“Energy prices are pushing up in an environment where consumers already face higher costs of living,” Ms Savage said.
“We’ve seen record wholesale energy prices in July, but network costs are also likely to increase as inflation and rising cost of capital impact the cost of network investments that will be needed to support an orderly decarbonisation of the energy system.”
“In these tough economic conditions, we are focused on using our regulatory levers to get the best possible outcomes for consumers to ensure the energy transition is delivered at least-cost,” she said.
These levers include compliance and enforcement of national energy laws to protect consumers, network determinations that put a cap on the amount of revenue network businesses can collect from consumers, and the default market offer that sets a cap on retail market standing offers.
The AER will also launch its first-ever consumer vulnerability strategy in October that includes a series of actions to tackle market complexity and improve energy equity.
“We know that for various social, physical and mental reasons, many consumers experience periods of vulnerability that makes it more difficult to grapple with increasing energy bills,” Ms Savage said.
“Market transition and design needs to have consumers at the centre of it. Through our work in better understanding the lived experience of people experiencing vulnerability, and in reviewing consumer protections for future energy services, we have an enormous opportunity to work with stakeholders to ensure that the new energy market works for all consumers.”
“Consumers need to feel confident that Australia’s transitioning energy market is working for them, and we are focused on doing everything we can to make that happen.”
For more than a decade, the annual State of the Energy Market is the AER's flagship report, providing an impartial and comprehensive view of Australia's east coast energy markets from all angles - wholesale electricity and gas markets, the transmission and distribution networks, energy retail markets, and consumer experience.
For the first time, this report has been published alongside the Energy Security Board's annual report on the Health of the National Electricity Market, which presents an evaluation on how the NEM is performing against the objectives set by energy ministers in the Strategic Energy Plan.
These reports should be read together to present a full picture of the energy market as it is now, and the challenges ahead as the market transitions to achieve Australia's climate goals.