Why do energy prices change?

Jun 6, 2024 | Indigo Power, Industry

Wondering why your energy rates change each year? There’s a lot that goes on behind the scenes when it comes to electricity. As energy providers, we manage a few unavoidable costs to keep your lights on every day.

Every year, we update our prices to reflect changes in wholesale, network, retail, and environmental costs that make up your tariff. These changes affect what you pay for energy. Energy regulators also update their Default Offers at this time of year. These are safety net offers designed to protect people who don’t shop around. They also act as a benchmark, making it easier for you to compare plans.

Even though we update our prices each year, we always apply the same principles:

Our pricing principles

Energy sharing: As a social enterprise, our goal is to create a society powered by 100% renewable energy. We strive to connect our customers with energy shared from local sources, whether community batteries or solar and battery customers. We look for a balance between a strong feed-in tariff and a good energy consumption rate. The higher the feed-in tariff, the higher the consumption rate needs to be to recover the cost. Each year, we aim to find a fair balance that encourages energy sharing between our energy producers and consumers.

Fair and honest pricing: We don’t have legacy tariffs, hidden fees, or any other pricing tricks. You don’t need to call in and ask for the best rates because we always offer the best rates we can.

What’s changing this year?

Energy rates: Good news for most regions! We’re lowering power rates in response to these adjustments — a change we’re excited to share. Additionally, Australian households will benefit from a $300 National energy rebate from the Government, aimed at easing cost-of-living pressures.

Feed-in tariff: As energy prices reduce, so does the value of exported energy. We’re also seeing that the price of wholesale power during the day, which is when most spare solar PV is exported, is often very low or even negative. That means we don’t get as much value as we used to from putting power back into the grid and our feed-in tariff has dropped as a result.

We know that many of our solar customers will be disappointed. That’s why we’re working on a new plan for the daylight savings period to encourage energy export and consumption at critical times across the day.

Why are rates changing?

Let’s break down the main components involved in energy prices and what’s changed:

Wholesale energy: This is the electricity we buy from generators to power your property. It’s the biggest slice of your energy cost pie. Finally, after years of increases, the cost of wholesale energy eased up a little, bringing some much-needed price relief. The recent volatility is precisely why we’re so passionate about boosting local energy sharing. Renewables aren’t just planet-friendly; they can help provide stability to wholesale prices as generation is spread over many smaller units, whereas a single, very large coal power station can cause a big price shock if it runs into reliability problems or announces its closing. 

Distribution and network: We pay local network service providers to keep power flowing through the poles and wires to your home. These costs vary depending on where you live and how many upgrades are needed. This year, due to higher inflation, these costs have mostly gone up, offsetting some of the savings from lower wholesale costs. The three NSW electricity distribution companies are increasing their residential network tariffs by around 6% in the Essential region and by around 13-16% in the Ausgrid and Endeavour regions. Small business network prices are increasing by around 12% to 19%. Together, distribution and wholesale costs make up the bulk of an average electricity bill.

Environmental: As energy providers, we must comply with various government environmental schemes aimed at boosting renewable energy. This year, these costs have seen a slight uptick.

Retail and other costs: These make up a smaller component of energy costs, and have gone up due to the rising expense of managing bad debts as well as increased requirements to roll out smart meters.

How all these changes impact your bill, ultimately depends on factors like your total usage, network region, whether you have solar panels, and in many cases the times of day that you use most power.

National Government Energy Rebate

Australian households are set to benefit from a $300 rebate and eligible small businesses will receive $325 from the Government to ease cost-of-living pressures. These rebates will be distributed in four quarterly instalments starting from 1 July 2024, and we’ll automatically apply these to your bills. We’re thrilled to see Australians receiving a bit of financial relief.

We know pricing changes can cause discomfort, so if you have any questions or feedback, please don’t hesitate to reach out. 

We thank you for contributing to the movement to power our communities with 100% renewable energy. As an Indigo Power customer, you’re helping to make our work possible.

Ben McGowan
Ben McGowan

Ben is Indigo Power’s Managing Director. He has a passion for collaborative initiatives that make a positive impact on our communities. Ben leads our skilled and committed projects team, driving the uptake of community-scale clean energy technologies in communities around Australia.

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