The energy sector is calling for the upcoming annual electricity tariffs to mirror actual market conditions, emphasising that they should not be adjusted to shield households and businesses from the escalating cost-of-living crisis.
This request comes as the Australian Energy Regulator (AER) is determining the electricity bill adjustments set to take effect from July 1.
A report by The Australian highlighted that several energy retailers in the country are urging the AER to modify its tariff calculation method. This change would consider the growing adoption of rooftop solar and compensate retailers for increasing losses.
Should the AER accommodate the industry's request to adjust for rooftop solar panel adoption, the default market offer, which dictates the maximum yearly price increase, would be higher than if the current methodology continues.
Industry vs regulators
This issue marks a subtle yet growing conflict between electricity companies, concerned about being financially constrained by the next default market offer, and regulatory authorities, who prefer minimal or no increases in electricity bills.
The Australian Energy Council, representing electricity retailers, argues that the next default market offer should enable retailers to recover their costs while also safeguarding customers.
They emphasize that the energy transition is challenging traditional business models, thereby placing the AER in the difficult position of balancing customer protection on regulated tariffs with ensuring a viable market that supports competition.
With retailers operating on slim margins and approximately eight companies exiting the market in the past 18 months due to supply and demand shocks, the industry stresses the importance of accurately reflecting supply costs.
The AER's decision last year to approve bill increases of at least 20% for households and businesses came after a global energy crisis, which saw many retailers incurring substantial financial losses.
Political unpopularity
The likelihood of further increases in the default market offer, however, faces political unpopularity. Energy bills have significantly driven inflation, leading to multiple interest rate hikes by the Reserve Bank since May 2022, exacerbating the cost-of-living crisis and impacting public support for Prime Minister Anthony Albanese and the Federal Government.
Energy retailers may find it challenging to persuade the AER, especially given recent government interventions like the coal price cap, which have helped lower wholesale prices. However, the potential for higher prices from July 1 remains, particularly with the expected El Niño weather event causing hot, dry conditions across Australia's eastern seaboard.
Despite the threat of price spikes, the high levels of rooftop solar have generally reduced wholesale prices, with sunny weather leading to periods of negative wholesale pricing. This situation results in coal-fired power station owners paying to produce electricity, further amplified by having to pay households and businesses for excess electricity from their solar panels.