No escape from hot weather or high power prices this summer

“The way retailers contract in the wholesale market is on long-term contracts, which means our prices are locked in until these contracts are renegotiated.

“Furthermore, retailers tend to reprice their portfolios at the start of each financial year to reflect changes in the underlying cost of poles and wires, which are reset at this time by the AER.”

Mr Dufty said while wholesale prices were settling back down to a “new normal”, there were upward pressures in other parts of the system. These included the cost of capital for regulated transmission and distribution companies, which would be recouped through consumers.

Double-digit power price rises were in the national spotlight last year following the outbreak of the war in Ukraine and instability in the grid, which forced AEMO to temporarily suspend the market.

The higher wholesale prices flowed through the AER’s Default Market Offer this year – which retailers use as their benchmark for their own retail deals – with prices rising by up to 25 per cent from July 1.

Grattan Institute energy program director Tony Wood said if the energy grid made it through the El Niño summer, the AER would probably put out a lower Default Market Offer next year which should provide some relief for households and small businesses.

“If nothing goes wrong, you could very well expect some decreases on July 1 next year. But retailers don’t rush to put their prices down,” he said.

“But if it’s a bad summer with coal-fired power station outages, then all bets are off.”

Josh Stabler, managing director of energy adviser Energy Edge, said future power prices early next year had fallen from a peak of more than $200 per megawatt hour for NSW and Queensland. They were now down to $125 to $137 per megawatt hour.

“But in the energy markets, the weather always gets the last word,” he said.

“The last six months and the next six months are likely to be dominated by the weather. For summer 2023-24, the [Bureau of Meteorology] has released some brutal forecasts for a hot summer. Hot weather, through air conditioning load, will drive high – likely record – electricity consumption, which will be a sharp change after three wet and mild La Niña years.”

The AEMO quarterly update found wholesale electricity prices averaged about $63/MWh in the September quarter, down 71 per cent from the same period last year.

But UNSW senior research associate Dylan McConnell said there was still a big variation in the wholesale price between the states, including $114/MWh in SA, $89/MWh in NSW, $74/MWh in Queensland, and $58/MWh in Victoria.

Dr McConnell said wholesale power prices were falling but were “still pretty high by historical standards”.

“They are falling from a very high peak and there is a big lag between wholesale and retail prices,” he said.

“There’s also the rocket and feathers phenomenon – where prices rocket up and float down.”