Relief in sight: Why residential electricity costs in Eastern Australia may fall between 2015 and 2020

Abstract

Residential electricity consumers in Australia’s National Electricity Market have reduced their consumption by 18% since 2009 in response to sharp price increases. In this article, we undertake a bottom-up analysis of the component costs for residential electricity supply, including wholesale energy, network and renewable energy costs, which in aggregate may decrease by between 14% and 19% in real terms between 2015 and 2020. We apply observed price elasticity factors to the forecast 2020 electricity prices, and find that an increase in average household demand between 2% and 16% is possible. The continued evolution of recently deregulated energy markets is considered by applying results from Victoria (which has a longer history of market reform) to the other jurisdictions, resulting in an increasing diversity of offers in the market and increased ‘switching’ by consumers. Combining these factors, average residential electricity bills in New South Wales, south-east Queensland and South Australia may decrease by 11% to 15% in real terms between 2015 and 2020 (relatively flat in nominal terms). However, if there is a continued trend towards energy efficiency and distributed generation, savings for average customers of 19% to 23% in real terms are possible relative to 2015, with additional savings available for those who seek out the best market discounts. To maximise the benefits of these developments for consumers, we recommend the continued roll-out of ‘behind the meter’ energy management solutions and a focus on consumer education and empowerment.