Key Findings
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.
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.
IEEFA 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.
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, analysis of historical prices over 2014-2024 shows 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.
Opportunities exist 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.
