Last updated on 20th June 2019

Lower prices, reliable supply and one-off cash payments: What you can expect from the post-election energy market

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The Government was returned in May with a clear acknowledgement of the pain being felt by Aussies over ever-rising power prices and, more importantly, a plan for action.

With a range of new reforms, the Government is aiming to increase the reliability of power supply and decrease power prices across the country.

These are the four biggest changes coming to Australia’s energy market that you should be aware of, including one of the most significant shifts since the market was first deregulated.

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Introducing the Default Market Offer

What will it do to your bills?

If you’re one of the almost 800,000 Australians currently on a standing offer you’re likely to see cheaper bills. You’ll also see advertised discounts likely to reduce as they’re brought in line with the new offer. This won’t directly affect the cost of your bill.

Why is it happening?

Over the past year, Australia’s energy watchdogs have been raising awareness of the unfairness of standing offers with excessive rates. A standing offer is the rate a customer would pay for energy if their contract with an energy provider has expired, or if they never signed up to a contract in the first place. It is essentially a ‘default rate’.

Customers that are ‘in-contract’ pay a market offer rate. A market offer is typically significantly cheaper than a standing offer. In fact, research from the Australian Energy Market Commission (AEMC) has found that standing offers can be up to $832 per year more expensive than the cheapest market offer[1].

What is it?

The new Default Market Offer (DMO) is one of the most significant changes to the energy market since it was first deregulated in 1998. The DMO will set a cap on the rate that energy providers can charge for standing offers. It’s intended to act as a price safety net, protecting customers from excessively high standing offer rates. The DMO will be applied in all states that do not already have a legislated price cap in the coming months.

The Victorian State Government has jumped ahead of the other markets and will be introducing a Victorian Default Offer (VDO) on July 1st. The VDO differs from the DMO because it will replace all standing offers, rather than set a price cap on them. Like the DMO this price will be set by the energy regulators[2].

Clarity over discounts

The DMO will also act as a state-by-state reference point against which advertised discounts will be calculated[3]. This is intended to stop energy providers from advertising meaningless headline discounts. For example, at the moment a provider can advertise a 40% off discount that may actually be more expensive than a plan with no discount.

After the DMO is brought in, energy providers will have to calculate their discounts against one, standardised rate. This should make it easier for you to tell whether one offer is more likely to end up saving you money than another.

A one-off $365 million Energy Assistance Payment

What will it do to your bills?

This payment won’t directly affect your power bills.

What is it?

To help combat the rising price of power bills, the Government is issuing a one-off payment to eligible Australians that is expected to be paid by 30 June 2019. The payment will be $75 for singles and $62.50 for each eligible member of a couple.

Eligible recipients of the payment include those receiving the age or disability support pensions, single parenting or career payments. A range of other Australians are eligible for this payment, and a full list can be found here.

Investing in the future: Underwriting New Generation Investments

What will it do to your bills?

Over time as wholesale prices fall you should start to see your energy bill falling too.

What is it?

The Underwriting New Generation Investments (UNGI) program is the Government’s long-term plan to increase competition, reduce wholesale electricity prices and improve the reliability of Australia’s power-generating network. This will be achieved with targeted investment in power generation.

The program is technology neutral and is a commitment of $10 million over two years to determine how to achieve these goals in the near and distant future. A key goal of the UNGI program is to reduce wholesale prices in the National Energy Market by 25-30% by 2021[4].

In March 2019, the Government announced a shortlist of 12 power generation projects that will receive funding under the UNGI program that includes six renewable pumped hydro projects, five gas projects and one coal upgrade project[5].

Stronger protections for energy consumers

What will it do to your bills?

At this stage, we’re not sure.

What is it?

A key part of all these reforms is an acknowledgement that a lot of Australians have been getting a raw deal on energy. Now, to empower consumers, the Government is proposing to crack down on the energy providers.

The proposed reforms include empowering the Australian Competition and Consumer Commission (ACCC) to take stronger action when they identify “unacceptable” consumer outcomes. They would also increase the power of the Australian Energy Regulator (AER) to investigate suspected cases of market manipulation and correct them[6].

As these reforms are finalised, consumers should expect to be hearing about a range of measures that should give them more confidence to fight back when they feel they’ve been taken advantage of.

References

[1]A Price Safety Net, https://www.energy.gov.au/sites/default/files/price-safety-net-enr059d.1018_0.pdf
[2]Electricity and gas retail markets review implementation 2018 (Victorian Default Offer),https://www.esc.vic.gov.au/electricity-and-gas/inquiries-studies-and-reviews/electricity-and-gas-retail-markets-review-implementation-2018/electricity-and-gas-retail-markets-review-implementation-2018-victorian-default-offer
[3]AER issues Default Market Offer decision, https://www.aer.gov.au/news-release/aer-issues-default-market-offer-decision
[4]Underwriting New Generation Investments program. https://www.energy.gov.au/government-priorities/energy-supply/underwriting-new-generation-investments-program
[5]Underwriting New Generation Investments program, https://www.energy.gov.au/government-priorities/energy-supply/underwriting-new-generation-investments-program
[6]Affordable, reliable power for Australians, https://www.energy.gov.au/government-priorities/affordable-reliable-power-australians

This article is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.