Statement on Energy Price Relief Plan: Good news for customers in the short term but price cap impact uncertain

Direct government support to vulnerable households and small businesses is a positive step in the short term but announced caps on upstream fuel costs may not deliver the desired lower prices, according to the peak body for energy retailers and generators, the Australian Energy Council.

The AEC’s Chief Executive, Sarah McNamara, said “Direct support is an effective way to deliver timely bill relief to consumers and we welcome this initiative.

“The recent exceptionally high energy prices we have seen have not been caused by the activities of electricity generation or energy retailing but are due to international factors outside their control.  Market participants are not making large profits in these conditions. The war in Ukraine and other global factors have produced a complex set of circumstances which have placed extraordinary pressure on energy markets, and on customer bills throughout 2022. 

“We understand and appreciate the intent of the government in seeking to put downward pressure on prices by reducing generator costs. Price caps should only be used as a temporary tool and interventions of this nature are extremely difficult to get right. We would caution against presumptive rhetoric about the short-term impact of any price caps.

“How price caps impact retail bills is also difficult to predict. Regulated electricity prices have already been set through to 30 June 2023 and the next Default Market Offer (DMO) won’t be finalised until May next year.

“Industry is yet to see the detail or analysis that shows how the price caps will impact bills. If more lower priced fuel is available, over time those savings may lead to lower wholesale electricity prices, but that will take time to flow through to end users.”

“Retailers and generators enter contracts to hedge their load.  This means that many of the contracts for the next 12 months have already been settled on the basis of higher prices,” Ms McNamara said. 

For more details on the wholesale market and retail prices see this: Background Briefing: How coal and gas prices impact retail electricity bills .

About the Australian Energy Council

The Australian Energy Council is the peak industry body for electricity and downstream natural gas businesses operating in the competitive wholesale and retail energy markets. AEC members generate and sell energy to 10 million homes and businesses and are major investors in renewable energy generation. The AEC supports reaching net-zero by 2050 as well as a 55 per cent emissions reduction target by 2035 and is committed to delivering the energy transition for the benefit of consumers.