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

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  • Orton, Fiona
  • Nelson, Tim

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.

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  • Orton, Fiona & Nelson, Tim, 2015. "Relief in sight: Why residential electricity costs in Eastern Australia may fall between 2015 and 2020," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 57-70.
    • Handle: RePEc:eee:ecanpo:v:48:y:2015:i:c:p:57-70
    DOI: 10.1016/j.eap.2015.11.007
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    References listed on IDEAS

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    1. Malcolm Abbott, 2002. "Completing The Introduction Of Competition Into The Australian Electricity Industry," Economic Papers, The Economic Society of Australia, vol. 21(2), pages 1-13, June.
    2. Kay Cao & Rosalynn Mathews & Summer Wang, 2015. "Modelling Household Energy Consumption Using ABS Survey Data," Economic Papers, The Economic Society of Australia, vol. 34(1-2), pages 36-47, June.
    3. Simshauser, Paul & Nelson, Tim & Doan, Thao, 0. "The Boomerang Paradox, Part I: How a Nation's Wealth Is Creating Fuel Poverty," The Electricity Journal, Elsevier, vol. 24(1), pages 72-91, January.
    4. Narayan, Paresh Kumar & Smyth, Russell, 2005. "The residential demand for electricity in Australia: an application of the bounds testing approach to cointegration," Energy Policy, Elsevier, vol. 33(4), pages 467-474, March.
    5. Nelson, Tim & Reid, Cameron & McNeill, Judith, 2015. "Energy-only markets and renewable energy targets: Complementary policy or policy collision?," Economic Analysis and Policy, Elsevier, vol. 46(C), pages 25-42.
    6. Tim Nelson & Paul Simshauser & Simon Kelley, 2011. "Australian Residential Solar Feed-in Tariffs: Industry Stimulus or Regressive Form of Taxation?," Economic Analysis and Policy, Elsevier, vol. 41(2), pages 113-129, September.
    7. Simshauser, Paul, 2010. "Vertical integration, credit ratings and retail price settings in energy-only markets: Navigating the Resource Adequacy problem," Energy Policy, Elsevier, vol. 38(11), pages 7427-7441, November.
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    1. Tim Nelson & Stephanie Bashir & Eleanor McCracken-Hewson & Michael Pierce, 2017. "The Changing Nature of the Australian Electricity Industry," Economic Papers, The Economic Society of Australia, vol. 36(2), pages 104-120, June.
    2. Nelson, Tim & McCracken-Hewson, Eleanor & Sundstrom, Gabby & Hawthorne, Marianne, 2019. "The drivers of energy-related financial hardship in Australia – understanding the role of income, consumption and housing," Energy Policy, Elsevier, vol. 124(C), pages 262-271.

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