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Each year we take the time to review the energy price outlook for SMEs – and each year we hope for a favourable forecast. Last year, the outlook was somewhat disappointing, with wholesale costs and network charges contributing to prices peaking in October 2022. But can we expect a turnaround over the coming 12 months? And what are the real drivers of Australia’s skyrocketing energy prices? Zembl’s Director of Energy tells all.
The hard facts
The hard truth is that the 2023 outlook for energy prices is rather grim if you’re a small business owner in Australia. Draft price standards released by market regulators in March imply that, come July, small businesses across the Eastern seaboard are likely to face some of the biggest energy price hikes on record. The draft default market offer (DMO), an energy price ceiling issued by the Australian Energy Regulator (AER), suggests New South Wales-based SMEs should anticipate price increases between 14.7% and 25.4%, depending on their geographic location. Meanwhile, those in South Australia and Queensland can expect their energy bills to rise by 25% and 30%, respectively.
The draft Victorian default offer (VDO) – Victoria’s equivalent of the DMO – reveals that small business owners in that state are looking at an eye-watering price hike of 33.2%. “It’s pretty huge,” says Doug Payne, Director of Energy at Zembl. “We haven’t seen these numbers ever before in the energy market. Traditionally, you see increases of five, six, maybe seven percent. In fact, I remember one year where they announced an increase of nine percent – and it sent shockwaves through the community. Talkback radio was going bananas, the press were all over it because it was hot news. And now, they’re predicting 33% in Victoria!”
As Doug points out, it’s important to remember this year’s numbers are still based on a draft determination. The final decision won’t be announced until 24 May. In the meantime, government intervention and other influences could moderate the extent of price hikes. But even if they do, the reality is that retail energy prices are still going to rise significantly across the Eastern seaboard.
Energy supply remains the underlying issue
The DMO and VDO price standards are intended to protect consumers from unjustifiably high energy retail prices. In issuing them, Australia’s regulators consider a variety of factors: the network costs of using infrastructure like cables and wiring, environmental charges paid to regulators, wholesale energy prices, retailers’ profit margins, and more.
Which of these factors are responsible for the massive hikes consumers are likely to face this year? “As members of the public,” Doug says, “we like to bash the retailers.”
“If you listen to talkback radio, it’s often, ‘AGL are doing this, Origin Energy are doing that, Energy Australia are doing this.’ But the reality is that retailers are actually dropping their margins this year. Of all the inputs that make up an energy bill, retailers’ profit margins are the only one that is decreasing.” Doug explains the real culprit for skyrocketing retail prices is the cost of buying wholesale energy, which has more than doubled in the past 12 months.
Most of Australia’s energy comes from coal and gas – natural resources the country has in abundance. But with the global energy shortage brought about by events including Russia’s invasion of Ukraine, Australian companies are selling increasing quantities of these resources offshore, where they fetch a higher price. “In turn, that leaves us short on fuel. And that fuel shortage has roughly tripled the wholesale price of a megawatt hour since 2020, when the market was flat,” Doug says.
Still waiting for renewables to go live
To solve Australia’s energy crisis, we need to address the underlying supply issue. And to do that, we need to move as quickly as possible to an alternative source of energy: renewables. But progress on that front has been painfully slow, Doug explains, and energy consumers are paying the price. He mentions the Snowy Mountains hydroelectric project as a prime example. This revamped generation site was originally set for completion this year, but now isn’t expected to come live until 2028.
“That’s a huge delay,” Doug says, “and it’s part of why we’re facing this perfect storm of rising energy costs.” We’re shutting off coal-fired power stations and other fossil fuel sources, which is great for the environment. But right now, we’ve got nothing to replace them with. We’ve got all these great initiatives to convert to renewables, but they’re just taking way too long to reach their go-live dates.”
What can you do to weather the storm?
There’s no denying it: The outlook for energy prices in 2023 is bleak. But to weather the storm and fight back against rising energy costs, you do have an option: to shop around. By running a comprehensive comparison of energy retailers and plans, you’ll be able to rest assured that you’re not paying a cent more than you need for your precious energy.
At Zembl, we constantly review the energy market and work with businesses to help take control of your energy bills and achieve potential savings. Fill in our simple contact form below, and one of our Energy Experts will call you to discuss your options and make sure you're not paying more than you should be.
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