Power bills are up. When will cheaper electricity reach Australians?

Household electricity costs rose 12.8 per cent over the year to September, even as wholesale prices fell. With coal stations ageing and Snowy 2.0 now expected to cost up to $25 billion, Australians are still waiting to see how much relief the new electricity system will deliver.

An Australian household can use the same amount of electricity as it did a year ago and still have more to pay. A bakery can face a higher bill before it has sold its first loaf of bread. And a manufacturer negotiating its next power contract has to decide whether it can afford to expand here.

All three can read that wholesale electricity prices are falling and wonder when the good news will reach them.

The Bureau of Statistics says household electricity costs rose 12.8 per cent in the year to September, largely because Commonwealth rebates ended. Meanwhile, average wholesale prices across the National Electricity Market fell 27 per cent in the September quarter compared with the same quarter a year earlier.

The two figures tell different parts of the story. The wholesale price is what electricity trades for on the grid. The bill includes the cost of getting that power to the customer, the retailer’s costs and the effect of any rebates. Take away a rebate and the customer can owe more even while the wholesale market is getting cheaper.

Snowy 2.0 still has to be paid for

When Snowy 2.0 was announced in 2017, the headline estimate was $2 billion and the project was initially expected to come online in 2021. The estimate had already reached $6.1 billion by the time the final investment decision was made in 2018. It rose to $12 billion in 2023.

Snowy Hydro’s latest target is $22.2 billion, with an allowance for a $25 billion scenario. Full commissioning is now scheduled for late 2029.

The idea behind the project is easy to understand. When electricity is plentiful and cheap, Snowy 2.0 will use it to pump water uphill. When the grid needs power, the water will flow back down through turbines. That gives Australia a way to store large amounts of energy for periods when wind and solar output is low or demand is high.

The financing is harder to explain. At the previous $12 billion estimate, about $4 billion was Commonwealth equity. Most of the balance came from government and bank loans, which Snowy Hydro must repay with interest, and from the company’s own cash flow. The financing for the revised cost is still being worked out.

Snowy 2.0 could help bring down wholesale prices during periods when power is scarce. Before Australians can judge the return on that investment, they need to know how much more public money will go into it and how much debt Snowy Hydro will have to carry.

Coal is still doing a job

Coal-fired power stations still supply large amounts of electricity, including after sunset. Their age matters. As units become less reliable, an unplanned outage can leave the grid buying more expensive power at short notice.

The difficult part is getting the timing right. Keep an ageing station running and someone has to pay for the maintenance it needs. Close it before enough replacement generation, storage and transmission are ready and the system becomes more exposed when supply is tight.

That is the practical problem facing Australia. The coal fleet is ageing on its own timetable. Building transmission lines, connecting wind and solar farms and getting large storage projects into service all take time.

Renewables are already changing the price of power

Renewables supplied 44.3 per cent of electricity generated in the National Electricity Market in the September quarter, a record for that time of year. Grid-scale batteries also supplied more power than gas during the evening peak. The market operator says increased battery use helped bring down evening wholesale prices.

That matters because cheap electricity at midday can only go so far. The value of storage is that it lets the system use some of that power at six in the evening, when families are cooking dinner and businesses are still operating.

The Commonwealth is underwriting new renewable generation and storage through the Capacity Investment Scheme, backing transmission through Rewiring the Nation and subsidising eligible home batteries. The benefits arrive at different times. A household with a new battery can start buying less power from the grid straight away. A transmission line can benefit far more people, but only once it is built and carrying electricity.

Who is feeling the cost?

Industry. An aluminium smelter needs reliable electricity around the clock at a price that lets it compete internationally. The long-term power agreement for Tomago Aluminium shows what is at stake when a large industrial contract comes up for renewal. Electricity costs can influence whether a plant expands, keeps producing or shuts.

Commercial businesses. Hotels, offices and cold stores face different costs depending on when they use electricity, how much they draw at peak times and when their contracts expire. For a business on a fixed contract, a cheaper quarter on the wholesale market may have little immediate effect. The price on offer at renewal is the one that matters to its budget.

Retailers. A supermarket has to keep its freezers running overnight. A bakery may need its ovens on before sunrise. Those businesses can only move so much of their electricity use into the cheapest hours of the day. Some small businesses have had relief since July through lower regulated standing offers in New South Wales, south-east Queensland and South Australia. For others, what they pay still depends on their tariff, their usage and any rebates they previously received.

Households. Some regulated household rates have also fallen, including flat-rate standing offers in New South Wales and south-east Queensland. The equivalent South Australian offer rose. There is another divide within those markets. A homeowner with solar and a battery can draw less power from the grid at dinner time. A renter who comes home after dark may have little control over the equipment in the house or when the washing and cooking get done.

The Times View

Cheaper wholesale power is welcome. Australians will judge the transition by what it costs to run a home, keep a shop open and manufacture goods here.

Snowy 2.0 is years behind its original timetable, its revised financing is still being worked out, and there is no clear date for broad relief on electricity bills. As governments commit more public money to the grid, households and businesses deserve to know what each major investment will cost, when it will be operating and how much of the saving they can expect to see on their bills.