Thousands of older Australians will find it more affordable to heat their home this winter, as a new price ceiling that’s set to deliver $36 million in household savings kicks in from July.
And yet they are the same cohort most likely to miss out on additional power bill savings.
More than 700,000 Australians will save up to $116 on their electricity, but the automatic price falls are far less than the lowest energy offers available on the market.
Savvy power users who shop around this winter can expect to see savings of between $340 and $557 than what you’ll find on the new Default Market Offer (DMO).
The gap between the best offer and the regulator-determined price continues to widen for most customers – apart from those who shop around.
The Australian Energy Regulator revealed its new DMO on Tuesday, crediting the price drop to the raft of renewable energy driving down wholesale costs for retailers.
Green energy has driven the driven the price of power down from between a 2.7 to 7.4 per cent price reduction in the DMO – which equates to savings of between $53 to $116 a year.
The DMO protects residents in New South Wales, South Australia and south east Queensland – who cannot negotiate their own contracts – from power bill blowouts.
While that may sound noble, the DMO has failed to keep pace with an average nine per cent fall in electricity prices across the market since winter last year.
More than one in 10 (11 per cent) households are missing out on bigger savings by staying on the DMO, which is sluggish to keep up with price reductions by around two years. This means your energy bills are based on outdated wholesale contract prices instead of the price retailers are currently paying.
“The safety net is providing less and less safety,” Andrew Harpham, director of Frontier Economics told The New Daily.
“[Other regulators] in the past have looked at the price today at which retailers can lock in electricity supply for next year … if they had done that prices would be lower still, and that’s why we’re seeing such a big gap between the best offer.”
The AER’s methodology is a “double-edged sword”, says Tony Wood, energy program director at the Grattan Institute, because consumers are denied access to price drops but can also be protected against price rises.
“Having something that moves relatively slowly isn’t itself a bad thing, but of course it does mean when you’ve got sharper decreases than [in the past], consumers aren’t seeing the full benefit,” says Mr Wood.
Mr Harpham figures that wholesale costs would remain low for a while.
“We don’t see wholesale prices going up any time soon. Almost all the state governments have aggressive policies to bring in new investment in renewables over the next decade,” says Mr Harpham.
While wholesale prices are falling fast there are much bigger savings to be made by utilising a comparison service to renegotiate a deal with providers, with the AER saying customers could save hundreds of dollars by moving to the best offer on the market – savings worth between $217 and $254 a year.
Rather than relying on outdated calculations to influence energy bill savings, consumers need to be more proactive in the hunt for better deals, says Compare Club chief Andrew Davis.
“There is almost no value in brand loyalty to any service or insurance provider. The best way to save money on your bills and insurance costs is to regularly question what you’re paying for and have providers work to keep you as a customer. On average, households who switch their energy provider could save $219 a year,” says Mr Davis.
The findings from Compare Club’s first Bill Shock Index, a new quarterly analysis of 1500 billpayers, highlights the relationships, pain points and value Australians get from their services.
The Index revealed how disengaged many Australians are from finding better deals, meaning millions of dollars that are being handed over to power retailers could be saved.
It revealed that 85 per cent of Australians experienced ‘bill shock’ in the past three months, with young billpayers the most heavily impacted.
Bill shock was most associated with energy bills, where over 40 per cent said electricity and gas bills in October were between $100 and $200.
Yet 20 per cent of Australians haven’t even considered switching, according to the Index.
Older Australians are the ones most likely missing out, with the over 55 age group far less likely to switch (38 per cent) than the younger cohort of 25 to 44-year-olds (64 per cent).
Electricity prices spark the most bill shock, with costs from energy providers coming in significantly higher than anticipated for 40 per cent of people. For 15 per cent of people, their electricity and gas bill were equivalent to the cost of their health insurance.
“Even if you don’t always get a significantly better deal, sitting down and reviewing all your plans once a year is a form of financial ‘hygiene’, and you’ll inevitably feel more in control of your finances and avoid that horrible ‘bill shock’ feeling down the track,” says Mr Davis.
In the meantime, the ACCC is doing what it can to drive prices down, as the watchdog continues its investigation into retailers failing to pass on the full benefit of falling costs under the government’s ‘big stick’ laws, which force companies to offer their best prices.
Since the laws were introduced last year, there has been a nine per cent reduction in electricity costs, and around $900 million in potential savings available for households that shop around.
“We’re currently investigating a number of retailers where they haven’t been passing it on in all circumstances,” says ACCC chair Rod Sims.
“We’re going to look at whether that nine per cent is a sufficient reduction, given the large reduction in costs.
“But secondly, and crucially, we’re going to be checking to make sure [lower costs] are passed on to consumers.”
Have you tried switching or renegotiating your energy contract?
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