How challenges in the energy market affect your bill

The wholesale cost of electricity has been going up due to a range of global and local factors – contributing to an increase in household electricity bills – unwelcome news for many. We take a look at how the wholesale cost of electricity impacts the price you pay with your energy retailer.

How wholesale prices impact energy bills

Electricity is a commodity that can be bought, sold or traded – just like gold or oil. The wholesale energy market is where retailers buy electricity at wholesale prices, to supply to their customers at retail prices.

The cost of wholesale electricity makes up around a third of an average customer electricity bill. This means when wholesale costs go up, retailers adjust their prices to cover the cost.

Why do wholesale energy prices go up?

Just like any other commodity, the price of electricity in the market varies based on supply and demand. Spot prices in the National Electricity Market (NEM) change every five minutes.

How much is being used, how much is being generated at the time, where it’s coming from, how it’s being generated, the season, fuel prices (coal, gas, and oil), and other factors all have an impact. Prices are set by the highest cost generation required in the market at any given time to meet demand. This means that even the price of renewable energy is impacted by rising coal and gas prices.

That doesn’t mean your prices could change every five minutes, though. Retailers like us take on the risk by purchasing energy in advance. That means we can set prices for homes and small businesses and protect customers from the daily fluctuations in the wholesale price.

Larger retailers like us generally manage risk of price fluctuation by buying energy over longer periods of time, sometimes over years. We also have some of our own energy generation, which means we’re not entirely reliant on buying energy on the wholesale market. But we are still facing cost pressures due to coal supply issues, and because we only generate enough power for around half our customer’s needs, we are exposed to paying higher market prices for the rest.

Some smaller suppliers tend to buy energy from the market over shorter periods, like a few months. While this means smaller retailers may be able to offer lower prices when wholesale prices are low, if prices increase then the result can be larger cost increases. For all retailers, it’s a complex challenge to buy the right amount of energy – at the right time – to keep customers’ bills as stable and affordable as possible.

What this means for Origin customers

If your prices are changing, we’ll let you know. Our commitment is to provide all of our customers with a fair price for energy that reflects what it costs us to provide energy to you. We’ve lowered prices before and we hope to do so again in the future.

For customers in financial hardship, who may be struggling with their energy bills, we have tailored support available through our Power On program. We strongly encourage anyone in need to contact us so we can help.

We’re also increasing support for our most vulnerable customers and will be protecting everyone in our Power On hardship program from the impact of these price changes.

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