Electricity & gas update | 17 March 2023

17 Mar 2023

Electricity prices to rise and gas supply shortfall risks remain in 2023
The Australian Energy Regulator released its draft determination on the Default Market Offer (DMO) earlier this week. The DMO is a maximum price (price cap) that retailers can charge electricity customers on default or standing offer contracts. This is the fifth determination of the DMO (DMO 5) and applies to electricity prices between July 1, 2023 and June 30, 2024.

For small business customers, prices will increase between 14.7 per cent and 25.4 per cent (7.9 per cent to 18.6 per cent above forecast inflation) in 2023-24. In NSW, prices will rise by between $640 (14.7 per cent) and $858 (17.5 per cent) dependent on supplier, in Queensland the increase will be between $669 (19.4 per cent) and $753 (19.9 per cent) and in SA, prices will increase by $1,151 (25.4 per cent). In Victoria, where a different default market applies, small businesses can expect electricity prices to increase by $1,738 (33.2 per cent).

The federal government claims that electricity prices would have soared even higher had it not stepped in and introduced the price caps on coal and gas at the end of 2022. But, this will be of little comfort to small businesses struggling to deal with substantial price increases, at a time of high inflation, rising input costs and a very tight labour market.

The Australian Energy Market Operator (AEMO) also released its Gas Statement of Opportunities this week, which showed the risk of further gas shortfalls from winter 2023 to 2026. The report forecasts a 16 per cent reduction in production from Victoria in 2023, which will increase supply pressure in the southern states.

While several key infrastructure projects are on track for delivery, including upgrades to the Moomba-Sydney pipeline and South West Queensland Pipeline that will increase the system’s capacity to deliver gas from Queensland to consumers in NSW, ACT, SA, Victoria and Tasmania, these must be completed on time to minimise the risk of gas shortfalls. However, delays in the decision on the construction of the Port Kembla liquefied natural gas (LNG) import terminal and investment in gas storage facilities in Victoria and NSW are adding to risks and uncertainty of future supply.

The AEMO report also highlights the importance of the Australian Domestic Gas Security Mechanism (ADGSM) and the heads of agreement with LNG exporters, which includes the Gas Supply Guarantee. Queensland LNG exporters must divert gas contracted for export to the domestic market to maintain domestic adequacy. AEMO forecasts that if LNG exporters export all of their uncontracted supply, rather than supplied to domestic consumers, there would be a domestic supply gap in 2023 of up to 33 PJ. If this were to occur, under the newly drafted version of the guidelines, the minister may be required to step in and trigger the ADGSM.

Electricity & gas update | 17 March 2023

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Electricity & gas update | 17 March 2023

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