What are the factors driving changing power bills, and are there any opportunities for reductions?
Key Takeaways:
Gas prices have historically been a key driver of wholesale electricity prices rises. Recently, coal-fired power station outages have also been driving up wholesale prices.
Higher penetration of renewable energy is correlated with lower spot prices, so introducing more renewables into the mix can put downward pressure on prices.
Network costs have risen, but there are opportunities to bring them down through addressing electricity network supernormal profits and reducing peak demand.
Households and businesses could also reduce their energy bills by improving the insulation of buildings, replacing old, inefficient electric appliances with efficient ones, and installing rooftop solar and storage.
20 March 2025 (IEEFA Australia) | As Australian households process last week’s news of rising power bills, a new briefing note examines the factors driving up the cost of electricity over the longer term, and opportunities to prevent bill rises.
On 13 March, the Australian Energy Regulator (AER) laid out benchmark household power bill rises of between 5% and 8% for FY2025-26 in its draft Default Market Offer (DMO), and the Essential Services Commission released the Victorian Default Offer (VDO), which saw benchmark household bill rises of less than 1%. The increases in the DMO regions were largely driven by rises in the two largest components of an electricity bill: the wholesale costs which are the costs of generating electricity; and the network costs which are the costs of transporting electricity through the poles and wires.
The Institute for Energy Economics and Financial Analysis (IEEFA) has examined longer-term trends in wholesale and network costs components, and explored whether there are any opportunities to bring these costs down to reduce cost of living pressures on households, in a new briefing note Why are power bills higher now than they used to be?
The report notes that gas prices have historically been a key driver of wholesale electricity prices rises, with the historical correlation between gas prices and electricity prices found by Griffith University to be 0.9.
Recently, coal-fired power station outages have also been driving up wholesale prices, as when coal power stations have outages – which occur more frequently as they age – more expensive gas-powered generation will often step in to fill the gap.
Meanwhile, IEEFA analysis of historical prices over 2014-2024 has found that higher penetrations of renewable energy in the grid have historically been correlated with lower wholesale prices, as renewable generators bid into the market at low prices because they have no fuel cost. Introducing more renewable energy into the grid can put downward pressure on spot prices.
The briefing note also identifies opportunities to bring down network costs by addressing electricity network supernormal profits and reducing peak demand in the network.
Households and businesses can also reduce their consumption from the grid to reduce their bills, by improving the insulation of buildings; upgrading to more efficient appliances; and installing rooftop solar and battery storage.
Johanna Bowyer, Lead Analyst, Australian Electricity at IEEFA and the briefing note’s author, said: “Our analysis of historical trends shows that continued dependence on expensive gas power stations and ageing coal-fired power stations for electricity generation has been driving up wholesale prices, while more renewable energy has been bringing them down.
“Network costs, which have risen recently, could be reduced by addressing electricity network supernormal profits. Consumer-owned energy technologies that reduce the maximum power demand in the network, like batteries, flexible hot water heating and smart air conditioners, could reduce network upgrade requirements to put downward pressure on network costs.
“With the right support, households and businesses can also significantly reduce their electricity use, and therefore save on their bills, through upgrades that improve the energy efficiency of their appliances and buildings, and through installing rooftop solar and storage.”
Read the report: Why are power bills higher now than they used to be?
Media contact: Amy Leiper, ph 0414 643 446, [email protected]
Author contacts: Johanna Bowyer, [email protected]
About IEEFA: The Institute for Energy Economics and Financial Analysis (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. (ieefa.org)
