How to save on your energy bills before prices soar
Households in New South Wales, south-east Queensland and South Australia are being warned to brace for a sharp jump in energy costs following the release of the Australian Energy Regulators' (AER) draft determination on electricity prices.
The AER estimates that Default Market Offer (DMO) electricity prices for residential customers are likely to rise by around 20% in the coming months which, depending on the distribution area, would translate to an annual price increase of between $321 and $463.
The regulator won't release its final price determination until May, but once it does, prices will be set for the 2023-24 financial year starting on July 1.
"We know many households and businesses are already struggling with cost-of-living pressures. This is certainly a challenging environment for people to hear that further electricity price rises are on the horizon," says Australian Energy Regulator chair, Clare Savage.
While a rise in the vicinity of 20% will be an unwelcome development, the news is even worse for Victorian households who could be in line for a 30% price hike on their electricity bills from July.
The Essential Services Commission, which determines the Victorian Default Offer, released its draft decision on Wednesday which proposed an increase of $426 for 2023-24. That would see typical annual bills for residential customers on a default offer jump from around $1,403 to $1,829.
What are default offers?
The Default Market Offer (DMO) and Victorian Default Offer (VDO) are essentially price safety nets meant to ensure that customers don't pay too high a price on their electricity bills - even if they're not proactive about switching to a more competitive plan.
"The DMO and VDO are designed to be a fair price for all Australians on standing offer contracts. In some cases, it's been the cheapest price that many retailers have been able to offer over the past year," says Meredith O'Brien, the head of energy at comparison website Compare the Market.
While around 540,000 customers in New South Wales, south-east Queensland and South Australia, and 400,000 in Victoria, are currently on default offers, many electricity customers are signed up to other market offers which often come with price discounts.
O'Brien says that these market offers could also be hiked by retailers in the near future though if the draft default offer price rises do come to bear.
"This is because the DMO and VDO act as a benchmark for all market offers. Retailers must legally display the percentage difference between their market electricity plan on offer and the VDO and DMO. But retailers can and do set prices above the default offer, which is why it's so important to compare plans and retailers regularly to ensure you're not paying more than you need to."
Why are prices rising?
Unfortunately for households, many of the issues responsible for the double-digit electricity rises experienced last year are likely to ensure that prices jump again in July.
"A perfect storm of factors continue to cause those wholesale prices to remain high, including supply issues, wild weather events, plant outages and the ongoing war in Ukraine. Electricity retailers are paying more for this electricity and often pass costs on to customers," says O'Brien.
"We know that inflation is also a massive contributor to these high costs. The materials required to maintain the infrastructure are at a higher cost than they were in the past. Similarly, there are other costs involved, including network poles and wires costs, environmental costs and retailer and residual costs."
Even though power prices are almost certainly set to climb, the AER suggests that they could have been even higher if the federal government hadn't moved to cap coal and gas prices last October though, noting that, "forward contract prices for 2023-24 have fallen substantially since governments began discussing possible interventions in gas and coal markets".
It could pay to take action
With further bill pain on the horizon, households have been urged to take the initiate now in order to trim their power costs.
1. Start comparing plans
While it's always worth regularly checking in to see how your energy plan compares to other offers on the market, shopping around could be particularly beneficial at the moment - especially for those currently on a default offer which, Savage says, won't always be the cheapest option available.
"It's important to understand that the DMO is not the best offer, it is a safety-net. We encourage consumers to shop around for the best electricity deal for your circumstances."
She suggested visiting the AER's free, independent comparison website at energymadeeasy.gov.au.
O'Brien also encourages customers to run a fine-tooth comb over any potential plan to ensure that it's actually offering value for money.
"It's very likely that daily supply charges will increase as well, so factor this in when comparing plans. Also, pay close attention to discounts. While many plans boast perks, they may not always give you the best bang for your buck. Increased discounts are unlikely to match the rate of your price increases, so you will still end up paying more for your usage overall."
2. Adjust your home energy habits
Saving money by switching to a better-value plan is one thing, but there are also likely to be a few strategies that households can employ to reduce their actual energy consumption.
For starters, O'Brien encourages people to switch their appliances like computers, gaming consoles, and lights off at the wall when they're not being used, or to make use of smart appliances which can be adjusted remotely to save energy.
If practical, she says that it's also worth being strategic about when in the day you consume the bulk of your energy in order to take advantage of cheaper prices or to make the most out of solar panels.
"Avoid power-guzzling devices during peak hours outlined by your retailer if you're on a time-of-use plan. It's usually cheaper to run appliances overnight or on weekends during off-peak times."
3. Reach out if you need help
Given that many budgets are already under pressure from a range of elevated livings costs, a rise in electricity prices is only likely to compound matters. Households who are finding it difficult to cover their power bills are encouraged to reach out to their providers though.
"If you're struggling to pay your bills, contact your retailer as soon as possible because under national energy laws they must assist you," says Savage.
O'Brien agrees and also urges customers who are struggling with their bills to avoid going into debt to pay for them.
"Hardship programs through your electricity retailer won't incur interest. If you're using other methods like credit cards or loans, they typically incur interest, which could leave you struggling financially."
For more information you can read through the AER's guide on help for energy customers in hardship, or if you're looking for financial help you can contact the National Debt Helpline on 1800 007 007.
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