An alphabet soup of acronyms has dominated headlines this week as Australians try to make sense of the energy crisis.
Australia’s Energy Market Operator (AEMO) suspended the National Energy Market (NEM) for the first time, to make sure our lights stay on.
The Australian Energy Market Commission (AEMC) is handling compensation claims for generators having to start at a loss as the costs of making electricity rise.
Meanwhile, the Australian Energy Regulator (AER) and the Australian Competition and Consumer Commission (ACCC) are warning retailers not to take advantage of the situation.
But what does all this really mean for your electricity bills?
To prevent your brain from shorting out, we asked the experts to break it down for the average electricity user.
When will people start noticing higher prices?
In a few weeks.
July 1 will herald a new fiscal year and higher electricity prices.
“Most of the time the price increases will be from July 1. And then it will be in their first bill,” said Lynne Gallagher, chief executive of Energy Consumers Australia.
She says if you get your bills monthly, you’ll start to see increases in your August bill.
If you receive your bills quarterly, they will arrive home in August or September.
Even before this week’s crisis, prices were rising.
It’s because of changes to – brace yourself, another acronym – the DMO, or default market offering.
It should be noted that the DMO was set almost a month ago, before the spike in wholesale prices in the spot market that we have seen in recent days.
“The default market offering is kind of a safety net offering. And those prices are set for 12 months,” says Ms Gallagher.
The DMO is the highest price a retailer can charge a customer who is not looking for a competitive offer.
In South East Queensland it is up 11.3%. In New South Wales, it increases between 8.5 and 14.1%. And in South Australia, it is up 7.2%.
But only one in 10 customers is on the DMO, and those who shop around can still save hundreds of dollars a year.
Retail customers are largely shielded from wholesale market volatility that prompted the AEMO to set a price cap, according to Clare Savage, chair of the Australian Energy Regulator.
How much of the bill goes to the energy producer versus the retailer?
Wholesale costs are paid to the producer. This represents about a third of your bill, says the ARE.
About 10% of your bill is retail fees.
Almost 50% of your bill covers network charges. It comes down to the people who build, maintain and operate the electrical wires.
Then there are about 5% of the so-called “green costs”. These are government programs to support the development of renewable energy, such as wind farms and rooftop solar.
Will switching retailers avoid the worst price increases?
It depends.
You might be better off with large retailers, which Ms. Gallagher says buy power up to two years in advance.
“For a lot of them, they won’t be paying those kinds of high rates again that we saw last week, and they can pass the benefit on to customers,” she says.
Ms. Gallagher says smaller retailers are more vulnerable to spot market prices.
“They don’t buy it 12 months up front. They have to pay what it costs today, or what it’s expected to cost over the next month,” she says.
Earlier this month, ReAmped Energy urged customers to switch companies, warning their bills would likely double.
While Marketplace offerings are generally more competitive than DMO, Origin has announced that its prices will climb even higher than the default price.
For example, in Queensland, it increases its variable tariff by 13.7%, even though the DMO is 11.3%.
Origin’s executive general manager, retail, Jon Briskin, said “the vast majority” of his customers will pay less than the DMO.
Ms Gallagher warns cheaper deals will dry up as higher wholesale prices hit retailers.
How can people find the best deal?
The simple answer is: shop around.
To help people do this, the Australian Energy Retailer has set up a price comparison website called Simplified Energy.
It allows you to upload your electricity bill and will generate a list of the best offers based on your consumption.
And unlike private comparison sites, it doesn’t take bribes.
How can you minimize your bill?
In addition to finding a competitive offer, there are other ways to minimize your costs.
If you’re on a time-of-use tariff, you can run power-hungry appliances during the day and at night when power is cheaper.
But most people aren’t on those rates, so Ms Gallagher recommends reducing your usage.
“Eliminate drafts, only heat the rooms you need heat from, not trying to heat the whole house,” she says.
“Heavy curtains can be just as helpful in giving you the insulation you need.
“Lots of carpets on the floor. Those are things people who rent can do.”
Ms Gallagher says homeowners should consider adding insulation, particularly to the ceiling.
“It’s definitely worth thinking about doing these things as we expect prices to stay high for some time,” she says.
The light at the end of the tunnel
As more coal-fired plants are repaired and brought back into service, Ms Gallagher says the situation should improve, “hopefully within the next six to nine months”.
The weather is also a factor. In the spring, people will turn on their radiators less.
And more sun will mean more solar production on rooftops.
“This year, with the type of weather that we’ve all had, especially on the east coast, with more rain, more cloud cover, the type of output that we expect from solar, and also, to some extent, wind, means that this very cheap energy has not been as available either,” says Ms Gallagher.
“So we have very expensive fossil energy and a lack of normal levels of very cheap energy.”
Ms Gallagher hopes for a sunnier outlook.
“Prices will certainly be even higher than they were 12 months ago, but the hope is certainly that they will not be as high as they have been for the past four to six weeks. “, she says.
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