QLD Electricity Market Update

There continues to be a lot of coverage in the media about electricity prices and this will continue throughout 2017 while the politicians debate energy policy and the findings of the recently released Finkel Review AKA – Independent Review into the Future Security of the National Electricity Market

In this article we aim to provide you with information on the factors that influence electricity prices so you can be better informed of the potential impacts on your future electricity costs.

Over the past few months, the market has experienced annual electricity cost increases between 10% and 40%.  The higher increases apply to customers who have came off longer term (two or three year) contracts during the January to April 2017 period. Increases in total electricity costs have been driven by steep increases in the wholesale electricity market price, particularly from early January 2017, peaking towards the end of April 2017.

The graph below shows the changes in the wholesale cost for electricity for the Calendar Year 2018, over the last 12 months.

Source: http://www.asxenergy.com.au/

The important point to note is the rapid drop in pricing from early June 2017, influenced in part by the State Government directive to Stanwell Energy to recommission Swanbank E Power Station by January 2018. The Government also asked Stanwell to alter its Pool Price bidding strategies, with the expectation that this might result in further downward pressure on wholesale pricing.

Our two State Government owned generation companies (Stanwell and CS Energy) control the majority of generating capacity in Queensland. They therefore have significant influence over the half-hourly Pool Price and the forward contract market, both up and down.

Current electricity futures pricing is in the order of 10-15% higher than 12 months ago for the calendar 2018 year, and this is reflected in similar increases in market contract rates from electricity retailers.

Network Charges

A positive note is that the Energex network charges have decreased from 1 July 2017 in the order of 10-13% for most customers in Southeast Queensland. This benefits all customer in varying degrees.

For Regional customers the Ergon network charges have decreased, but the actual reduction is more dependent on individual factors, such as the geographic location, peak and off peak consumption as well as the peak demand for any site.

New Entrant Retailer for Small Customers

One of the more interesting events is the entry of a new retailer, ALINTA ENERGY, for small customers on the back of an arrangement made by the Queensland Government. Alinta advertised offer is 25% off for residential customers and 20% off for small business customers. Both offers are currently well above the discounts offered by most other retailers so will have a positive impact for any customers considering taking up their offer.

This is a genuine offer and the base energy rates from Alinta are comparable to the standard AGL rates. A positive point for residential customers is the daily service fee is around $1.00 + GST and among the lowest from any retailer. It will be interesting to see any change in discounts offered by other retailers in response to this marketing strategy.

Regardless of who you retailer is, you need to keep aware of any changes in the underlying base rates throughout the term of any agreement.

So what does this mean?

For large customers (using more than 100,000 kWh per annum) with a contract expiring in 2017, and coming off a two or three year agreement (i.e. signed in 2014 or 2015), you could potentially see an increase of 10-25% in total annual electricity charges, depending on the retailer and term selected.

Large customers with a contract expiring in 2017 coming off a one year agreement (i.e. signed in 2016), depending on when the contract was renegotiated, could still see increases of up to 10% or greater.

The actual increase for any customer is dependent on your consumption profile, the current contract rates in place and the new retail rates at the time you choose to negotiate a new agreement. Longer term contracts will tend to deliver lower annual average cost increases.

Some retailers are also offering smoothed pricing that averages out rates over longer terms of 3 or 4 years. This provides lower upfront costs compared to the stepped prices that start high and drop off over time. AGL in particular has been very competitive is this area.

Smaller customers on standing offer-type arrangements (with annual consumption less than 100,000 kWh per annum), have seen increases in the order of 3 – 8% increase from July 2017. The actual increase is dependent on the current arrangements with your retailer.

Small business customers (including Body Corporate common areas) could see slightly higher increases, again depending on the current arrangements and any applicable discounts with your retailer.

With the entry of Alinta into the market and their higher than usual discounts for small customers could potentially see an increase from a number of other retailers arrangements (both residential and business types) in the order of 8 to 16% on consumption charges only.

When is the best time for large customers to renegotiate?

We can’t advise you as to the best time to renegotiate as the market can change at any time.

What we do suggest is that you arrange the renegotiation of your agreement no later than 4-6 weeks before the expiry of the current agreement and be in a position to take advantage of any reduction in the wholesale electricity market rates.

This article was contributed by Andrew McNair of Energy Options Australia.