What happens to prices on 1 July?
On 1 July, the “default market offer” or “DMO” changes for NSW residential and small business electricity customers. This year, the default market offer increased by around 20%.
The default market offer is price cap for standing offer contracts set by the Australian Energy Regulator. You may be on a standing offer contract if you have been in the same location for several years and have not actively shopped around for an energy plan. About 10% of customers are on standing offers.
If you are on a market offer instead, the price cap does not apply. Many market offer customers pay less than the default market offer. However, you need to shop around regularly to make sure you on a deal that is suitable for your circumstances.
Retailers can change the prices of market offers at any time (subject to the terms of your contract), as long as they provide the required notice (usually 5 days).
See more information about the difference between standing and market offers.
IPART does not have a role in setting prices.
Why are prices increasing?
Electricity prices are increasing mainly due to substantial increases in wholesale costs. Wholesale electricity costs make up about 35% to 45% of your bill depending on where you live in NSW.
In determining the default market offer for 2023-24, the AER have noted that wholesale price increases are due to:
- the more expensive electricity futures contracts that were traded before the temporary fuel price caps came into place
- relatively stronger coal and gas costs compared with previous years
- reliability issues with coal-fired generation assets
- the closure of the Liddell Power Station in NSW in April 2023
- the increasingly peaky shape of customer demand.
From 1 July 2023, wholesale prices in the default market offers increased by around 50%.
The other major cost of providing electricity are the costs of transporting electricity from electricity generation sources to your home or business through the poles and wires. These are called network costs. The network provider in your area will charge your retailer for these costs, and your retailer will factor them into your retail prices. Network costs make up around 30% to 40% of your bill.
Network prices change on 1 July each year and are approved by the Australian Energy Regulator. From 1 July 2023, network prices increased by around 5% to 10%.
How is my retailer able to put up my tariffs by more than the increase quoted by the Australian Energy Regulator?
There may be several reasons why your bill has increased above the increase in the Australian Energy Regulator’s default market offer (“DMO”) price cap,
Firstly, as set out above, the default market offer applies to retailers’ electricity standing offers only. There is no limit on what retailers can charge for market offers.
Secondly, even for customers on standing offers, the default market offer does not put limits on changes to individual price components - it provides an overall bill cap for a given level of consumption. This means that retailers may increase an individual tariff component by more than the change in the default market offer, so long as the combination of tariffs does not result in a bill higher than the default market offer.
You can find more information on the default market offer on the Australian Energy Regulator website.