Energy Costs is on the rise in Australia
Australia is facing its worst energy crisis in decades, echoing the turmoil of the 1970s oil shocks. Businesses are already feeling the strain. This means homes and businesses across the state are being forced to pay much more for electricity and gas.
This soaring crisis, primarily driven by escalating wholesale costs, has had a profound impact on the state’s economy and society. It has cast a heavy shadow over Victoria, leaving households, businesses, and organizations reeling under the weight of increased costs.
In addition to electricity, gas prices in Victoria have also experienced a significant increase. This isn’t just a Victorian problem either – all across Australia, energy prices are going through the roof.
Significant change is coming to how companies use energy and how the industry delivers it. Understanding the forces behind rising costs is essential to navigating this transformation.
Impact of Rising Energy Prices on Victoria
Recent surges in energy prices have significantly impacted Victoria, resulting in increased costs for households, businesses, and organizations. These price increases stem primarily from higher wholesale costs. These price increases have a substantial impact on Victoria’s economy and society, including:
- Increased financial burden on households and businesses
- Pressure on community service organizations
- Reduced disposable income
- Potential job losses
Figure below shows the increase in trade-weighted prices of quarterly base swaps for 2023–24.
Source: ASX Energy Trade log and Essential Services Commission analysis
Let’s see the scenario in brief
- The Victorian Default Offer (VDO), which sets the electricity prices for consumers who do not have retail contracts, has experienced a 25% increase for 2023-24 compared to the previous year. This increase is predominantly driven by wholesale costs, accounting for 21%.
- Wholesale electricity costs escalated notably in May 2022, reaching their peak in October 2022. While costs have recently declined, they remain approximately double the levels observed in 2021-22.
- The price volatility in energy markets is a national issue, making it more expensive for energy retailers to procure and distribute electricity throughout Australia.
- The Australian Energy Regulator reports a 12.2% increase in household gas bills over the past year.
05. In 2024, Australian households and businesses faced unprecedentedly high energy bills in Australia in 2024 can be attributed to a confluence of factors.
Average Yearly Cost $1,290 / year
| State | Average Electricity Bill (Yearly) | Average Gas Bill (Yearly) |
| New South Wales (NSW) | $1,253 / year | $812 / year |
| Victoria (VIC) | $1,290 / year | $920 / year |
| Western Australia (WA) | $1,992 / year | $576 / year |
| South Australia (SA) | $1,742 / year | $844 / year |
The Reasons Behind High Energy Bills in Australia (2024)
Understanding the complex tapestry of reasons for Australian energy price surges is crucial in crafting informed solutions:
- Global energy crisis:
Energy markets are interconnected. Australia, while rich in its own resources, remains vulnerable to international events. Notably, the ongoing disruptions from the Russia-Ukraine conflict have created instability in global energy prices, and these ripples extend to Australia. The Russia-Ukraine conflict and the subsequent sanctions on Russia disrupted global energy markets, leading to a sharp increase in the price of oil, gas, and coal. - Aging Infrastructure:
Many Australian power plants and transmission networks are reaching the end of their lifespan. The country’s aging energy infrastructure, particularly in distribution and transmission networks, contributed to inefficiencies and higher costs. Upgrading and maintaining these assets incurs costs that are often passed on to the consumer. - Increased demand:
Australia’s booming population and thriving economy are fantastic in many ways, but they also bring challenges. More people and more businesses naturally mean greater demand for energy. This puts a strain on our existing power systems, potentially contributing to price increases and supply issues. - Domestic supply shortages:
Australia’s dependence on coal-fired power plants leads to capacity constraints during high-demand periods. This issue exposes the limitations of these aging plants and their susceptibility to price volatility. - Retailers buy electricity directly from the spot market:
Buying electricity from the spot market exposes retailers to the risk that prices may be high when they need to purchase electricity. - Wholesale market pressures:
The Wholesale Electricity Market (WEM) experienced periods of high volatility, with prices spiking during peak demand and putting upward pressure on retail electricity costs. - Weather Extremes: Australia faces escalating extremes of weather under the impact of climate change. Intense heatwaves and prolonged cold snaps trigger heightened energy demand, straining supplies and raising prices.
- Transition to Renewables:
While the shift towards renewable energy is necessary, the transition entails costs. Setting up the necessary infrastructure for increased reliance on solar, wind, and storage capabilities requires substantial investment factored into energy bills. - Network costs: The maintenance and expansion of electricity distribution networks contribute to overall energy costs.
What is the Victoria Government Energy initiative to Solve?
Victoria Government Energy Incentive
Victorian Energy Assistance
The Victorian Government’s Power Saving Bonus offers a $250 rebate to eligible households to alleviate the financial burden associated with rising energy costs. To qualify, the applicant’s name or that of another household member must be listed on the electricity account. The rebate will be distributed in regular installments on energy bills throughout the 2023-24 fiscal year.
Additional Federal Support
The Australian Government has allocated up to $1.5 billion in the 2023-24 federal budget for targeted energy assistance for consumers. This includes a further $250 rebate per eligible household and $325 per eligible small business. These measures aim to encourage energy efficiency and support households and businesses affected by the increased cost of living.
The VEET/VEU Scheme Solutions for Homeowner and Business
the Victorian Energy Upgrades (VEU) scheme previously known as The Victorian Energy Efficiency Target (VEET) is government initiatives designed to address the issue of high energy bills by promoting energy efficiency measures. Policies aimed at reducing carbon emissions, such as the carbon tax, have also increased energy prices.
The VEU scheme by installing energy-efficient measures recommended in the energy audit. This scheme provides direct financial assistance to low-income households and community housing providers for energy efficiency upgrades, such as insulation, LED lighting, Heat pump and efficient appliances.
For example, installing Heat Pump for Residential or Commercial can earn a rebate of up to $1000 per fixture.
Understanding the VEET/VEU Framework:
- Apply for VEU Grants: Low-income households and community housing providers can apply for VEU grants to cover the costs of energy efficiency upgrades. Eligibility criteria and grant amounts vary depending on the specific programs offered.
- Victorian Energy Efficiency Certificates (VEECs): Every eligible upgrade generates these certificates. An accredited provider handles the administrative side.
Subsidies: Energy retailers in Victoria purchase VEECs to meet mandated targets. The revenue translates into substantial subsidies for households and businesses undertaking energy efficiency improvements.
Step-by-Step Solution to Reduce Energy Bills
Harnessing the VEET/VEU Scheme
The VEET/VEU program acts as a market incentive driving energy efficiency improvements in households and businesses across Victoria. It encourages participants to implement energy-saving upgrades, promoting energy conservation and minimizing energy bill strain. Here’s a breakdown of how it works:
Step 1: Choosing the Right Upgrades:
Energy Audit: The VEET/VEU scheme covers a wide range of energy-efficient improvements. Homeowners and businesses should conduct an energy audit through a Certified Provider to identify areas where they can reduce their energy usage. This can include
Which upgrades could make the most significant impact on my energy bills?
Several upgrades can slash your energy costs, the best ones depend on your home/business. Here’s a prioritized list:
- Insulation : Like a cozy blanket for your home, top-notch insulation prevents heat loss in winter and heat gain in summer. This leads to less strain on your heating and cooling systems.
- Lighting Upgrades (LEDs): LED bulbs use a fraction of the energy incandescent bulbs do, with far longer lifespans. Switching your whole house could substantially lower your bills.
- Replacing old, inefficient appliances like Heat Pump : If your HVAC system is outdated, consider upgrading to a high-efficiency model, like a heat pump. Modern systems use significantly less energy while providing the same comfort.
- Installing solar hot water or PV systems: Installing solar panels significantly reduces your reliance on the grid and can cut your bills substantially, though upfront costs can be high.
- Appliance Upgrades: Older appliances, particularly refrigerators and washing machines, can be major energy hogs. Look for Energy Star-rated replacements.
Step 2: Find an Accredited Provider:
Choose an Accredited Provider like GETech registered under the VEET/VEU program from the official Essential Services Commission list (https://www.esc.vic.gov.au/). These providers can advise you on eligible upgrades, installation, and handle the process required to obtain certificates for your upgrades.
Step 3: Installation and Certification:
Each energy-saving upgrade generates Victorian Energy Efficiency Certificates (VEECs), equivalent to a certain reduction in energy use.
- Installation by Professionals: Accredited providers work with qualified installers to ensure quality work and proper documentation.
- Certificate Generation: Following completion, the provider handles generation of the VEECs linked to your upgrades.
Step 4: Cashing in on Your Savings:
Energy retailers are compelled to purchase VEECs, and when you upgrade through an Accredited Provider, your certificates (and savings) are usually transferred to them in exchange for an upfront, point-of-sale discount on the installation expenses of your upgrades.
Check the Accuracy of Process:
- Refer to Official Sources: Consult and cross-reference the latest information on the VEET website: LINK to be added
- Review Case Studies: Explore real-life examples of the VEET/VEU scheme in action and quantifiable savings accomplished on the VEET website or via energy audit firms.
- Consult an Energy Advisor: Contact an independent energy advisor to obtain personalized guidance and ensure that maximizing the VEET/VEU incentives is correct for your situation.
Beyond the VEET/VEU Scheme: Other Measures to Decrease Energy Bills
Assess the upgrade cost against projected savings, including VEET/VEU subsidies. Prioritize changes with the best return on investment.
- Behavior Change: Small shifts like turning off lights and appliances when not in use, adjusting thermostat settings, and optimizing laundry habits can save energy over time.
- Compare Tariffs: Regularly compare energy providers and electricity plans to find the best rates available in your area.
How can I track my energy usage to understand my savings after implementing changes?
Here’s how to track your energy savings:
- Monitor Your Bills: The simplest way! Compare your energy bills month-to-month or year-over-year after making changes to observe reductions in usage.
- Smart Meters: Many energy providers install smart meters which give real-time insights into your consumption patterns. This can help identify areas for further improvement.
- Energy Tracking Apps: Various apps connect with your smart meter or utilities for easy visualization of your energy use trends and allow analysis of the impact of your upgrades.
Conclusion:
The Energy Crisis presents a painful but critical turning point. Businesses are already feeling the impact, but this crisis will likely spark an overhaul in how companies use energy and how the industry delivers it.
Addressing the underlying causes of rising energy prices requires a multifaceted approach involving government initiatives, consumer behavior changes, and a transition to renewable energy sources. The VEET/VEU scheme plays a crucial role in promoting energy efficiency and reducing energy consumption, ultimately fostering a more sustainable and cost-effective energy environment in Victoria.