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Wholesale energy price doubles………
Since January this year, wholesale energy prices have more than doubled across the NEM (National Electricity Market). The prime reason is the long term drought with limited water supplies affecting hydro power stations in the Snowy region and Tasmania which have virtually ceased delivering peak power. When Tasmania joined the national grid in 2005 it was expected to be a major supplier of power to southeast Australia but is now instead importing power from the mainland.
Coal fired generators have also been affected by the drought as they use large volumes of water for cooling. Most have been forced to buy water to continue operating as their dams have run dry. There are some secondary factors affecting the price at present including generator outages due to maintenance, increased trader activity and future supply uncertainty. Longer term causes may also be due to the fact there has been limited market-initiated investment in base load generator capacity since the national electricity market first started in 1998.
Gas prices have increased by 30% over this same period as gas fired generators have been buying large contracts for supply to cover the peak power shortfall from other traditional sources such as hydro and coal.
The government regulated default tariffs protect energy consumers using less than 160,000 kWh per annum (approx spend of $20K pa). The default price cap has been in place for the past 5 years since deregulation of the market however these tariffs are scheduled to be abolished in December this year. If this occurs, rates for domestic and SME consumers could potentially double overnight.
This leaves the government with some seriously difficult decisions to make. If the wholesale market remains high and the government does not increase default tariffs by a sufficient amount, some retailers may be unable to supply customers without incurring losses. This could result in retailers closing down which would in turn reduce competition in the market place. Reduced competition in the market place means higher pricing for all consumers (both small and large) which defeats the whole purpose of deregulation in the first place.
If we experience better than average rainfall conditions over winter then pricing should ease by October / November with melting snowfalls. The met bureau is predicting a 50% chance of average rainfalls this year. Talk about sitting on the fence!
Despite this prediction, industry analysts are predicting we are unlikely to return to the static pricing levels we have enjoyed over the past 5 years. Instead prices are expected to settle at least 50% higher than previous levels. Businesses need to seriously take this into account when budgeting for the coming fiscal years.
Are you nearing the end of your supply contract?
Customers currently renewing their energy contracts can expect price increases of anywhere between 50% - 120% from previous contract pricing. Customers may also find that some retailers do not bid for supply and those that do, may only offer validity periods of a few days.
Customers coming out contract mid or late next year should keep a regular check on the wholesale energy price. The optimal time to buy may be when the market softens as expected near the end of this year. Customers waiting to renegotiate until a few weeks before their contract is due to expire next year could find prices have again risen if we have a long hot summer.
Similarly, customers coming out contract over the next few months should consider a short term contract and wait to buy for the longer term later in the year.
About WINenergy
WINenergy are an independent service company providing value added products and services for energy consumers. Our services are designed to help you understand and manage your energy contracts to minimise the costs associated them.
When negotiating and purchasing energy contracts, it is important to not only understand pricing and tariff structures, but to also understand market volatility, how timing impacts pricing and when best to negotiate the renewal of a contract. Working together with our clients, we leverage our experience and market intelligence to strengthen your buying position in order to negotiate the best possible contract rates. WINenergy do not have alliances with energy retailers, nor take “hidden” commissions but instead offer transparent tender processes and consultancy fees.
If you wish to find out more about our services or simply like a free analysis of your bill to determine if any savings can be made then contact us on (03) 9822 4055.
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