Why energy and water prices are up

Living Well | RACV | Posted on 07 August 2018

We explain why three household necessities are costing us more, and what you can do about it. 

Australia may be one of the richest countries in the world, but an increasing number of households are finding financial security remains elusive. A decade of low wage growth, combined with rising house and rental prices plus skyrocketing energy bills, mean there’s a genuine disconnect between the big picture of the economy and the cost of living for the average household.  

Research by RACV has found that most Australian households are concerned about energy prices, while those with dependent children or on lower incomes say they struggle to pay their bills due to cost-of-living pressures.

While new technologies and the global marketplace have caused the price of the “nice to haves” – such as plasma TVs or smart phones – to fall significantly, the necessities of life,  including electricity, water and gas, are not subject to the same competitive pressure and their cost has been increasing very quickly. 

RACV takes a closer look at three household necessities putting the greatest pressure on average household budgets.

Utility icon with water droplets and arrow pointing up to indicate price increase


How much are prices up?  
A staggering 115 per cent increase over the past decade. 

Why the price hike?
The investment in building and managing the Victorian desalination plant in Wonthaggi and building the north-south pipeline (which will bring water from Eildon to Melbourne and includes buying water entitlements), to avoid the kind of reservoir failure Cape Town recently experienced, accounts for 25 cents of every dollar you’re paying for water. 

What now?
Victorians are already good water savers – our post-drought water usage is less than pre-drought levels – so any real curb on water prices will only come from fully using existing water assets to avoid costly emergency water use (i.e. using the desal plant) and further price hikes.  

The bigger picture
Melbourne households should have access to water at the lowest cost possible. How can you make sure this happens? Water use is set by state government policy, so make sure your local representative is aware of your concerns.

Amber utility icon with flame and arrow pointing up to indicate in prices


How much are prices up?  
A 100 per cent increase over the past two years. 

Why the hike?
Recent changes in the gas market, specifically the creation of an LNG plant in Gladstone, Queensland, means that eastern seaboard gas markets are now linked to the typically higher global price for gas. So gas is no longer a cheap household fuel choice and it’s unlikely it will ever return to its historical low prices. That’s bad news for Victorians, who have the highest level of gas consumption in Australia. Once a state-owned monopoly, there are now 13 retailers servicing 2.4 million households and 274,000 small businesses in Victoria. The market is tight and demand is high, and Victorians are paying the price. 

What are the options?
Energy-efficient electrical appliances are now offering better value over the life of the product, offering a real alternative for cooking, hot water and heating appliances. For new builds, or households with only one gas appliance, consider leaving the gas network altogether. 

The bigger picture
Customers, both small and industrial users, desire long-term certainty. Ensuring sufficient domestic gas availability must be a condition of export terms.

Utility icon with lightning bolt and arrow pointing up to indicate increase in price


How much are prices up?  
An average increase of $329 per bill over the decade to 2017.

Why the hike? 
Energy prices remained static in Victoria throughout most of the 2000s, but the state now has the fourth-highest prices among OECD countries. The main driver of the increase is network costs, mostly the state-mandated distributor-led rollout of smart meters (which make up around 17 per cent of network costs in Victoria), plus retail and margins. 

From January 2009, retail price regulation was removed and retailers were free to set the prices of both their standing offers and market offers. Victoria now has 25 retailers supplying electricity via a dizzyingly complicated mix of discounts, offers and contracts, making it challenging for consumers to know if they’re really getting a good deal. 

Last year’s Independent Review into the Electricity & Gas Retail Markets in Victoria found that households on average are paying 21 per cent per year more for their electricity than the cheapest offer available in the market. And low-income households spend up to five times more of their disposable income on electricity than higher-income earners. 

How can I get a better deal?
Regularly review your electricity contract, and compare offers using sites such as Victorian Energy Compare and the federal government’s Energy Made Easy, which also offers tips for controlling your energy costs. Always pay on time and be prepared to change your energy company. Energy efficiency and installing on-site generation lowers the burden buildings place on the electricity grid, reducing electricity prices for everyone. If you’re building, opt for no gas with solar and you could be $9000 to $18,000 better off over 10 years. 

The bigger picture
The best interests of Victorian households need to be at the centre of energy policy. This will be achieved when households can exercise greater control over their energy consumption and bills.

What about solar? 

Generating your own power is one way to avoid the challenge of finding the best energy deal, but before you sign up for panels or batteries, make sure you do your homework. 

The most important thing to know before investing in solar is how much electricity you use and when you use it. If you use a lot of electricity during the day, or can set your appliances to run on timers, solar can be a very good investment with a short payback time.

Quotes for solar panels vary depending on your needs and whether you need additional electric work. Adding batteries can double the cost of your system, and are still considered too expensive for most households.

For help estimating the cost and savings of a solar system, visit solar.racv.com.au.