Interpretation of retail electricity bills – Frontier Economics

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

We note the opinion piece by Frontier Economics in today’s Australian Financial Review. Different modelling houses regularly apply different modelling approaches and assumptions, which can lead to a diversity of outcomes. In this case, however, we strongly disagree with Frontier’s interpretation of retail electricity bills, in particular Frontier’s omission of the declining cost components of retail electricity bills.

In calculating the impact of the ALP’s Powering Australia Plan on retail electricity bills, we estimate the wholesale component of an average electricity bill (35.5%) to be both the largest and most important component of a retail electricity bill. This component is forecast to decline the most from currently high wholesale prices, and will therefore make the largest contribution to reduced retail electricity bills, at 83% of the total bill savings in 2025.

While Frontier recognises falling wholesale prices, Frontier fails to consider the impact of low-cost financing for well-planned infrastructure spending, which is also projected to reduce the other two main components of an electricity bill – stemming from environmental policy and regulated networks. The Rewiring the Nation policy specifically addresses network costs by accelerating and financing capital intensive infrastructure at lower cost than could be achieved through private borrowing. With the implementation of the Rewiring the Nation policy measure, this infrastructure hurdle is overcome, unlocking a wealth of low-cost renewable resources. Adding large-amounts of renewable energy will not only increase competition, lowering wholesale prices, but also depress environmental policy costs associated with schemes like the Large-scale Renewable Energy Target (LRET) as the supply of renewable certificates is increased, lowering the cost of compliance. We therefore project that all three major components of retail electricity bills will decline under the Rewiring the Nation scenario.

We note the similarity of our findings to numerous other reports, including modelling for the NSW Electricity Road Map[1], which found that while the major driver of retail savings is wholesale costs, low cost infrastructure investment will also result in lower transmission costs, delivering lower cost bills to consumers.

The similarly of our outcomes to other open and transparent modelling contributions speaks to our confidence in the work undertaken, with Frontier’s omission of declining costs for all three major components of retail electricity bills not accurately depicting the impact of the Rewiring the Nation policy.

[1] pp. 54-56 https://energy.nsw.gov.au/sites/default/files/2020-11/NSW%20Electricity%20Infrastructure%20Roadmap%20-%20Detailed%20Report_0.pdf

LATEST UPDATES

  • Carbon Markets

    By the numbers – A closer look at 2021 in the Australian carbon market

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    2021 was a year of records in the Australian carbon market, with prices, volumes and […]

    Research Insights | January 18th, 2022
  • Carbon Markets

    MARKET UPDATE: Australian Carbon Offset Market Report: Dec – Jan 2022

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Dear Subscriber, Our latest Australian Carbon Offset Market Update has now been published. The Australian […]

    Research Insights | January 11th, 2022
  • Carbon Markets

    Merry Christmas and holiday support / office hours

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Dear Subscriber, We hope that the festive season has been treating you well, and we […]

    Research Insights | December 22nd, 2021
  • Carbon Markets

    MARKET UPDATE: Australian Carbon Offset Market Report: Dec 6 – Dec 17, 2021

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Dear Subscriber, Our latest Australian Carbon Offset Market Update has now been published. The price […]

    Research Insights | December 22nd, 2021
  • Carbon Markets Outlook

    OUTLOOK: Long-term Australian carbon price, supply and demand outlook

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    The Australian carbon market has experienced a major bull run over the course of calendar […]

    Research Insights | December 20th, 2021
  • Download this free report

    To start your free download, simply fill in the below form. You will also receive our future updates, event invitations, and research insights by email.
    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone
  • Quick Navigation

  • Carbon Market

    Learn more about our Australian carbon price and market analysis
  • Electricity

    Learn more about our modelling and price outlooks for the NEM
  • EnergyIQ platform

    Access the latest market data with our EnergyIQ platform
  • Latest Insights

    View our latest articles, white papers, reports and publications