Increased Energy Prices

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The Australian Energy Regulator (AER) recently released its final determination for the 2022–23 Default Market Offer (DMO).The DMO is the safety-net price cap that ensures consumers are protected from unjustifiably high prices.

1 July 2022, the DMO prices in New South Wales, south-east Queensland and South Australia will increase for households (between 1.7% and 8.2% above inflation) and small businesses (0.2% and 13.5% above inflation), largely due to significant rises in wholesale electricity costs over the year.

It appears that since DMO 2021, wholesale costs for retailers have risen by 41.4 per cent in NSW, by 49.5 per cent in Queensland, and by 11.8 per cent in SA, due to reductions in thermal generation resulting from unplanned outages and higher coal and gas prices, slowing of investment in new capacity, and sharp highs and low that have driven up the cost of wholesale electricity contracts for retailers.

These wholesale market conditions have persisted since the AER’s draft determination in February and have been compounded by the ongoing war in Ukraine, which has led to significant pressure on coal and gas prices globally; extreme weather in NSW and Queensland which has affected coal supplies and electricity demand; and further unplanned outages at multiple generators.

In New South Wales, increases in network costs for Essential Energy and Endeavour Energy have also pushed up retail prices in these distribution areas.

AER Chair Ms Clare Savage said this year’s DMO determination was a particularly difficult decision as the regulator sought to balance the additional cost pressures on consumers with ensuring retailers could recover their rising wholesale and network costs.

“In setting these new DMO prices, we understand the significant impact they will have on some consumers who may already be struggling with cost-of-living pressures,” Ms Savage said.

“We have given scrutiny to all factors affecting the DMO calculation and have set safety-net prices that reflect the current conditions and underlying costs to retailers.

“Setting the DMO is not about setting the lowest price. We are required to set a price that will allow retailers to recover their costs, earn a reasonable margin and support retailers to compete and offer better deals and products in a competitive retail environment. If a large number of retailers are unable to recover their costs and are forced to exit the market – as we have seen recently in the United Kingdom – that will add more cost to consumers.

“Our safety net DMO price will continue to protect consumers from unjustifiably high prices and will continue to provide the reference point from which consumers can shop around for a better deal,” she said.

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