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Electricity prices are tumbling for generators, why not for consumers?

The prices big power generators receive have collapsed, but don’t expect that to show up on your power bill any time soon – if ever.

Average active wholesale contract prices have fallen roughly 36 per cent over the past three months.

Forward prices are depressed way off into the future too – down 26 per cent in 2020, 15 per cent in 2021 and around 10 per cent into 2022 and 2023.

But at the household level there is little change in sight.

It has a lot to do with the slow transmission of pricing signals to the households through annual regulated price reviews, as well as the factors framing a power bill.

Then there are the supply and demand dynamics within the electricity grid itself.

A quarter, or a third lopped off your power bill? Forget it.

It might work out to 1 or 2 per cent in a couple of years’ time, according to leading analysts such as David Leitch, principal at energy consultants ITK.

“At the household level, half the price [on power bill] is poles and wires. That’s fixed and, if anything, will go up,” Mr Leitch said.

Only around 25 per cent of a household power bill directly relates to the wholesale price and the other 25 per cent cover retailers’ margins and costs, such a meter reading.

“So if the wholesale price goes down, say, 10 to 15 per cent, down the track it amounts to a couple of per cent on the bill,” Mr Leitch said.

“Consumers will see little change this year. Prices might come down 1 or 2 per cent over two years. For big [industrial] consumers it would be a bit more, maybe around 5 per cent.”

Greenview Strategic Consulting director Jon Dyson agrees households will not see much difference.

“Not in the short term,” Mr Dyson said.
JP Morgan energy analyst Mark Busuttil does not see the wholesale electricity and gas price collapse as sustainable, particularly with forward-looking futures prices lower than spot prices.

“The rapid and significant collapse in wholesale electricity prices over the last three months has caught us by surprise,” Mr Busuttil told clients in a research note.

“On the gas side, we estimate Queensland gas producers require $8-$10/GJ (gigajoule) to be economic – well above current prices of $6.50/GJ.

“On electricity, renewable power plants are only marginally economic and there has been a noticeable slowing of capacity coming online.”

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