The AEMC has developed a 10 year outlook for residential electricity prices, to help the energy sector plan ahead and make informed decisions that support Australian energy consumers in the transition to net zero.

It projects how much the cost components or drivers that contribute to residential electricity pricing might change during the next 10 years.

The models developed were also tested against a range of hypothetical scenarios to see how household electricity prices might change based on different supply and demand conditions in the national electricity market (NEM) over the next 10 years.

Rather than just examining electricity bills, the analysis also considers how households' total energy costs or their 'energy wallet’ will change as they electrify transportation, heating and cooking.  

The 2024 Residential Electricity Price Trends report is the first with a 10 year outlook. We intend to update this publication annually, and take into account new information and analysis to continually improve our projections. 

Purpose

The purpose is to provide a 10-year outlook for residential electricity prices to consumers, policy makers and the industry is to:

• Promote transparency with a publicly available and tested price outlook which documents the method and assumptions we have used.
• Show which cost drivers are most influential to help policymakers target the most effective policies to achieve affordable electricity.
• Provide consumers with an understanding of how their decisions around electrification could influence their total energy expenditure.

These results should be interpreted as a projection based on current data and assumptions – in reality, prices may materially differ from this outlook. 

Background

We modelled each component of electricity costs – wholesale, network, renewable/energy efficiency schemes, and retail costs – using publicly available data from industry and government bodies, such as the Australian Energy Market Operator’s (AEMO’s) latest system plan and revenue determinations from the Australian Energy Regulator (AER), with a range of assumptions built in to reflect how the market is expected to operate.

We also modelled a number of scenarios outside of our central case to highlight the potential impact of risks and uncertainties to electricity prices.

Finally, our outlook for electricity prices was used to project household energy expenditure (the ‘Energy Wallet’) under different levels of electrification.

We previously produced a 3-year forecast of electricity prices. A 10-year outlook reduces the potential for confusion with the Australian Energy Regulator’s (AER’s) Default Market Offer, is more robust to short-term market volatility, and provides more scope for useful insights.

More information on how we modelled electricity prices and energy costs is contained in the methodology paper for this review. 

Key Results

• Residential electricity costs are projected to decline by about 13% over the next 10 years under our base case
• Electrification is projected to reduce average household energy costs by nearly $1000 per year, which is almost 20% of current spending on energy overall, by the end of the 10-year outlook
• A household who fully electrifies could reduce their energy expenditure by up to 70%
• If the integration of consumer energy resources (CER) is not well coordinated it could increase electricity bills for all households by almost $100 per year
• Delaying the connection of renewable generation and transmission into the market would put upward pressure on residential electricity costs

More information on these insights are detailed in the final report.