Australia has voted for a change of Government, and as the Labor Party settles-in living with the largest crossbench in history, the timing of the handover from the Coalition carries challenging circumstances. Energy prices are no exception.
Cost of living pressures are growing; inflation is expected to surge and at the time of calling an election, first year forward power prices are at the highest level than any previous Federal election.
Our analysis stretches back to all Federal elections since the Kevin 07 election campaign in 2007. This election of May 2022 has the highest forward energy prices facing a new or re-elected Government, since the energy market began deregulation in 1995.
The Labor Government has promised lower power prices but at the point of handover, prices are at record levels. Perhaps this pledge will be easier to achieve if prices are measured at the time of handover, but voters are unlikely to appreciate this technical benchmark. Instead, voters are facing much higher price levels than previous years.
The Default Market Offers and the Victoria Default Offer are due to be announced shortly by the Regulators, but these expected increases will not reflect the full impact of current energy prices. In setting the tariffs, Regulators assume a prudent Retailer would have been progressively hedging the risk.
As we reported in our Monthly Report, if Retailers have not hedged the risk and offer fixed prices, then they will not be able to remain profitable and competitive. Retailer stresses are beginning to emerge with Queensland and New South Wales small retailers of LPE and Discover Energy urging customers to churn to other Retailers. Big retailers are also not immune from the challenges, and there are parallels with Britain where wholesale market prices are higher than the regulated tariff, leading to 30 electricity retailers collapsing since January 2021.
Looking to the next election in 3-years time, the northern States of Queensland and New South Wales have continuing high prices. The Labor Party pledge to deliver lower prices will be dictated by the benchmark point, or will be a monumental challenge before the next election.
South Australia currently has the highest prices for the next 2-years than any previous Federal election, and the 3rd year is second only to the 2016 election.
Victoria which had significant swing to independent ‘teal’ candidates, has the highest first year price and second highest price to Scott Morrison’s 2019 “miracle” election.
Price data history for Tasmania is not as long as the other States, where the Coalition was successful in retaining the marginal seats of Braddon and Bass. The first year is at the highest point for the last 3 elections, and comparable to other elections for the second and third years.
The chart below shows the next 3-year price history for each election since 2007 and you can use the drop-down list on the chart to toggle through each State.
What does all this mean for the Anthony Albanese led Labor Government?
Lower power prices will be a challenge for the newly formed Government and based on this analysis, all States have a record high price level for the first year following the 2022 Federal election, compared to any previous election.
The power industry is a big challenge for the new Government.