Retail prices for gas and electricity are determined by several underlying factors: wholesale energy costs, renewable energy policy, regulatory caps and annual network charges.
In 2022, these factors conspired to push energy prices sky-high across the country, putting significant pressure on businesses’ energy budgets.
Now, as we approach the end of the calendar year, it’s about time to revisit the energy price outlook and consider whether there’s light at the end of the tunnel.
What will happen to energy prices, according to investors?
“Futures markets” provide reliable insights into what investors expect to happen to energy prices over coming months and years.
The contracts traded on futures markets are, in effect, bets on whether the price of a commodity (like energy) is likely to rise or fall over a certain period. If investors expect the price of energy to go up over the next 2 years, say, they will pay a higher price for energy contracts that are redeemable in 2 years.
In June 2022, futures data from the Australian Competition and Consumer Commission (ACCC) showed that wholesale electricity prices in SA, VIC and QLD were expected to continue rising for the next 4 years, while prices in NSW were expected to rise into 2023 before plateauing.
What will happen to energy prices, according to economic experts?
Another source of insight comes from economic modelling.
Currently, modellers at the Commonwealth Bank of Australia (CBA) are predicting that electricity prices will be “very high” in the winter months until 2025, and “high” in summer months. Their prognosis for gas prices is even worse.
Modelling by Cornwall Insight Australia paints a similarly troublesome picture for energy-consuming businesses, predicting that all states in the NEM “will have an annual median price of around $200/MWh, up until FY2025.” To put that figure in perspective, the median electricity price across states in 2021 was ~$40-80/MWh.
So, Australia’s energy price prospects aren’t looking great for the next few years. But what about beyond?
Renewables: The light at the end of the tunnel?
Most experts agree that the energy outlook is most likely to brighten when renewable, non-carbon-emitting modes of energy production become the norm in Australia.
The increasingly limited supply of coal and liquefied natural gas (LNG) available for domestic energy generation is widely acknowledged as the major factor driving up both wholesale and retail energy costs.
And so, the question isn’t when energy prices will go back down, but rather: How quickly can Australia transition to renewables and wean ourselves off fossil fuels?
What can businesses do in the meantime?
Let us help. Ensure your business isn’t paying a cent more than it needs to pay for electricity and gas. At Make it Cheaper, we constantly review the energy market, helping businesses compare options and take control of their energy bills to achieve savings. Contact us for an obligation-free review today on 1300 957 721.
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