Electricity Cost Comparison and Analysis
Over the last decade Australians have seen their electricity bills skyrocket. This has led many Australian households to seek ways of lowering their energy bills. The most effective measure of doing this is installing solar panels. By installing a solar PV system in your home, you are able to reduce your reliance on the grid for energy. The savings you make from switching to solar energy goes straight into your pocket.
The price you pay for electricity varies depending on where you are in the country, who your energy provider is, the time of day as well as a plethora of other factors like market trends. In this article we will examine the cost of electricity. We will explore what contributes to your electricity bill and then we’ll compare electricity costs from around the country.
Electricity Cost Breakdown
You would be excused for thinking that the primary cost of your energy bill is the generation of electricity. In reality, there are several factors that all contribute to the price you pay your energy retailer. The Clean Energy Council (CEC) breaks the cost of electricity down into four distinct categories:
- 1. Poles and wires – 44%
- 2. Electricity generation – 39%
- 3. Electricity company costs – 10%
- 4. Environmental costs – 7%
Electricity generation is just one of four contributing factors to the cost of electricity, and it isn’t even the largest contributor. The costs of distribution, administration, marketing, and environmental factors like the Renewable Energy Target (RET) all get passed down to us through our energy bills.
Poles & Wires
The cost of distributing electricity across the country through a network of poles and wires is the single biggest contributor to our energy bills. The size of Australia’s land mass poses a challenge to energy providers as they need to carry electricity to a vast and sparsely populated country. The result is one of the longest electricity networks on the planet.
This massive electricity network requires regular maintenance, construction and development. These costs trickle down to consumers’ energy bills and represent 44% of the average electricity bill.
The generation of electricity makes up only 39% of the total cost of your energy bill. This cost is referred to as the wholesale electricity price. In the last few years this price has risen due to an increase in production costs and the closure of several Australian coal power plants.
While wholesale prices have been trending upwards, there are several large new renewable energy generation projects that will be opening up over the next year. These new clean energy sources of power production are expected to stop the wholesale electricity price trend moving upwards.
Electricity Company Costs
The third largest part of the average energy bill is the cost of running an electricity company. This cost is predominantly derived from administration and marketing. These companies need to cover the price of maintaining databases, bringing in new customers and various billing processes.
The Australian Competition and Consumer Commission (ACCC) found in 2017 that electrical company costs contributed as much as 25% of the costs of electricity bills. A further study in 2018 by the Australian Energy Market Commission (AEMC) found this share to have dropped to around 12% of the average energy bill.
Although electrical company costs contribute less than both electrical generation and distribution costs, analysis suggests it is one of the major contributors to the recent rise in energy bills.
This category of your energy bill covers the cost of environmental schemes. These include the national RET and home solar schemes. The environmental costs in the average energy bill vary between states. Now that the RET has been met, these costs are expected to go down over the coming years. While these environmental costs have made a small contribution to energy bills, overall these schemes have saved the average Australian household hundreds of dollars on their power bill.
Electricity Cost Comparison by State
The last five years have seen dramatic changes in the price of electricity across the country. Below we have provided two tables comparing the price of electricity between New South Wales, Queensland, South Australia, Tasmania and Victoria. The data used is from the Australian Energy Market Operator (AEMO)’s website. The prices represent the recommended retail price (RRP) of electricity as shown in dollars per megawatt hours of electricity ($/MWh).
Average Electricity Price Trend 2015 – 2020 ($/MWh)
The following table depicts the changes in the average electricity RRP across states over the last five years.
The only state to have electricity prices similar to what they were back in 2015 is QLD. While prices in QLD rose dramatically in 2017-2019, a recent drop has kept prices down to 2015 levels.
NSW and VIC on the other hand have seen average electricity prices more than double over the last five years.
SA and TAS electricity prices have also risen steeply. While not as dramatic as in NSW and VIC, the price increase has still been a huge burden for consumers.
Average Electricity Spot Prices for March 2020 ($/MWh)
The table below shows the average spot prices for electricity in March across the states. The third column depicts the average RRP while the far right column shows the average peak RRP from 7:00am to 10:00pm Eastern Standard Time (EST).
|Date||State||Average RRP||Peak RRP|
There is a clear trend in the Australian energy market of electricity prices rising across all states. Analysis reveals that this increase is due to a number of factors. Electricity generation is just one of four contributing categories to the increase in the average energy bill. External costs like electrical company administration and distribution network maintenance are also responsible for consumers paying more for their electricity.
The solution for Australians concerned about these price increases is to reduce their reliance on the grid for their electricity. The best way to do this is by installing a solar PV system. Rooftop solar panels allow households to take advantage of clean, renewable energy while reducing the impact of the volatile energy market.
To speak with a specialist about making the switch to solar energy, contact our specialists through the contact form on our website or call 1300 076 527 today.