Overhauling the regulated pricing mechanism for electricity is a good step towards helping ensure Australian households and businesses receive a fair electricity bill.
This according to the Institute for Energy Economics and Financial Analysis (IEEFA), which agrees with federal Energy Minister Chris Bowen’s concession that the electricity price cap – known as the Default Market Offer (DMO) – could use reforming, among addressing other deeper issues in the underlying electricity cost components.
In response to Bowen’s speech yesterday (18 June), Johanna Bowyer, IEEFA’s Lead Australian Electricity Financial Analyst, says the energy transition is moving fast, and many households are pivoting to install their own rooftop solar, storage, and flexible energy technologies.
“This review should open the door to innovative tariffs while protecting consumers from unfair prices,” Bowyer says.
“While this review is a good start, there are deeper issues in the underlying electricity cost components that are also worthy of attention.”
Supernormal profits
For example, Bowyer says IEEFA has estimated that electricity network businesses across the National Electricity Market received $15 billion in “supernormal profits” over the past decade.
“This issue should be explored by the relevant authorities in parallel,” Bowyer says.
“Reviewing the DMO could well reveal opportunities to reduce electricity bills. However, by far the largest opportunity to reduce energy bills is to focus on how households use energy – shifting from gas or other inefficient appliances towards flexible efficient electric alternatives, installing rooftop solar and rolling out batteries.”
The IEEFA examines issues related to energy markets, trends, and policies. The institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.
Currently, the independent Australian Energy Regulator (AER) sets the Default Market Offer as a benchmark for residential and small business electricity bills in New South Wales, southeast Queensland, and South Australia, while the Victorian Default Offer is set by the Essential Services Commission.
The DMO was intended to act as a benchmark price to stop the worst forms of price gouging, while leaving the job of putting downward pressure on prices to competition.
The Minister for Climate Change and Energy says in uncertain times, Australians want an affordable plan, backed by the experts.
“However, I’ll be frank. I don’t think it’s working that way and reform is needed,” Bowen says.
“A major economic transformation like this doesn’t come easily or always smoothly progress is hardly ever linear.
“Before me and the government there is a challenge to deliver a fairer energy system, one that is modern and capitalises on our natural abundance, while delivering lower bills and emissions. Getting this right is the key to the economic prosperity of our country.”
Solar output surging
Bowen is calling on the private sector and the community to be engaged, to be “investing, thinking, innovating, risking and employing”.
Over the past three years there has been a massive acceleration of investment and deployment, with solar capacity and output up by roughly 50%.
In the government’s first term, Bowen says more than 15 GW of renewables was added to the grid – more than three Snowy Hydro schemes worth of renewables.
“By continuing to reduce emissions in electricity, driving to 82% renewable energy, our projections show we can reduce emissions by more than half of what they are today by 2030,” the minister adds.
“Without considering future reforms or the 2035 target, electricity emissions could halve again by 2040 under our projections.”
The Australian Government is now implementing the Cheaper Home Batteries program from 1 July 2025.
Bowen notes that while one in three homes have rooftop solar, only one in 40 have batteries. He adds that that abundant solar isn’t being harnessed as best it could – “we’re fixing that with 30% off the typical battery”.
“As 1 July approaches we’re getting final regulations in place and we will watch implementation closely, especially in the initial phases of the roll out. We can already see it’s a popular policy – the department website’s traffic has hit record highs of more than 114,000 views while battery sales are outpacing new solar systems for the first time ever,” he continues.
“With this significant community demand it’s vital we get the settings right so retailers and installers adhere to their responsibilities to customers and under the law.
“It also means ensuring that households and businesses are receiving the batteries that meet their needs, and that the subsidy in the first year is maintained at the right level in the context of rapidly declining battery prices.”
The government is alert to opportunities to keep calibrating the policy so it delivers for households and the energy system, supported by an Industry Advisory Implementation Committee, and the minister’s agencies will convene in the coming weeks.
“If we need to make adjustments, we will,” he says.
The Australian Energy Market Commission will be issuing final determinations and rule changes for many of these rule changes today (19 June).
Write to Adam Orlando at Mining.com.au
Images: Australian Energy Market Commission & IEEFA
