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This is the eighth annual residential electricity price trends report prepared by the Australian Energy Market Commission (AEMC) at the request of the Council of Australian Governments' (COAG) Energy Council. A copy of the terms of reference are available on the AEMC website.

The 2017 residential electricity price trends report (2017 report) identifies the current changes in the energy supply chain components that are driving costs and affecting the trends in residential electricity prices and bills for each state and territory of Australia from 2016/17 to 2019/20 (the reporting period). The four electricity supply chain components are:

• network costs: comprised of transmission and distribution costs, which account for around 40 to 55 per cent of the price

• wholesale market costs: which account for around 30 to 40 per cent of the price in most jurisdictions

• environmental policy costs: which directly account for around 5 to 15 per cent of the price

• residual component: which account for around 5 to 15 per cent of the price in most jurisdictions.

This report examines the different drivers of movements in each of the network, wholesale and environmental policy cost components. The residual component is derived by subtracting network, wholesale and environmental policy costs from the market or standing offer price. The residual component represents costs incurred by retailers, retail profit or loss and errors in the estimated value of all other supply chain cost components. It does not reflect nor is it meant to represent retail margins (either gross or net). The exception is Western Australia where the cost stack includes a retail cost component, which is equivalent to the regulated retail cost.

In most previous price tends reports the change in network costs has been the main driver of the change in estimated residential prices and bills. The 2016 report was different as it estimated that the change in residential prices and bills would be primarily driven by an increase in wholesale costs, following the retirements of the Northern (546 MW) and Hazelwood (1,600 MW) coal-fired power stations.

The 2017 report shows that the trends in residential electricity prices are primarily driven by wholesale electricity purchase costs in all jurisdictions. In the National Electricity Market (NEM), wholesale cost are expected to increase from 2016-17 to 2017-18 due to the retirements of Northern (546 MW), Hazelwood (1,600 MW) and Smithfield (171 MW) synchronous power stations and high gas prices and decrease in 2018-19 and 2019-20 due to new generation (approximately 4,100 MW across the NEM, of which 3,900 MW is renewable) and the return to service of Swanbank E (385 MW in Queensland). The regulated network component continues to be uncertain in a number of jurisdictions due to ongoing legal and regulatory processes.

In Western Australia and the Northern Territory, estimated residential electricity prices and bills increase over the reporting period, primarily due to increasing wholesale costs.

The price trends identified in this report are not a forecast of actual prices, but rather a guide as to what may influence prices based on current expectations, assumptions and legislation. Actual price movements will be influenced by how retailers compete in the retail market, the outcomes of network regulatory processes and changes in legislation. The way these trends affect an individual consumer will depend on how that consumer uses electricity. This is particularly relevant as the consumption profiles of consumers become increasingly diverse within and across jurisdictions.

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