Small businesses to pay up to 13.5% more for energy as AER flags price increase

energy

Small businesses will see an increase in their energy bills starting from July 1, 2022, with the latest wholesale statistics from the Australian Energy Regulator (AER) showing a hike in wholesale electricity prices for the first quarter of this year. 

The AER today announced increased default market offer prices for New South Wales, southeast Queensland and South Australia, with small businesses to see a 0.2% to 13.5% increase (above inflation) in their energy bills starting from July 1. The Victorian Default offer has already increased by 5%, with small businesses likely to see an increase of around $270 in their annual bills. 

The AER also notes that wholesale costs for retailers have seen a dramatic increase since 2021, with a 41.1% increase in NSW, 49.5% in Queensland and 11.8% in South Australia. These price hikes, the AER adds, are largely due to “reductions in thermal generation resulting from unplanned outages and higher coal and gas prices, slowing of investment in new capacity, and increasingly ‘peaky’ demand (sharp highs and lows)” which have all conspired to increase the cost of wholesale electricity contracts for retailers.

These conditions have been further exacerbated by the war in Ukraine, extreme weather in NSW and Queensland, and unplanned outages at multiple generators. 

The demand market offer, as AER chair Clare Savage says, is a safety net price cap protecting consumers from “unjustifiably high prices”, but does not necessarily mean setting the lowest price. 

“We are required to set a price that will allow retailers to recover their costs, earn a reasonable margin and support retailers to compete and offer better deals and products in a competitive retail environment. If a large number of retailers are unable to recover their costs and are forced to exit the market — as we have seen recently in the UK — that will add more cost to consumers,” she said.

However, Alexi Boyd, CEO of Council of Small Business Organisations Australia (COSBOA) told SmartCompany that this is yet another stress point for already overwhelmed small businesses.

“Energy has always been a large input for small businesses in terms of the proportion of their costs. Alongside increase in wages and rent, this is another example of how small businesses are seeing an increase in the cost of doing business.

“Everyday they have to make the decision on whether or not they are going to pass these price increases to their customers. It’s a day-by-day decision.”

According to findings from a soon-to-be-released COSBOA report into small business energy, around 32% of small businesses were already experiencing energy hardship because of COVID-19, resulting in many going into personal debt. Of this 32%, 55% found themselves in a worse financial position, with 21% using credit cards to pay business energy bills. An increasing number of small businesses also found themselves dipping into personal assets to pay off increasing costs like energy. 

The report also notes that many small businesses feared going into debt and distrusted the support mechanisms available, making them unwilling to reach out to their energy provider to discuss payment flexibility. Boyd adds that “the language on energy bills still continues to scare people, as it implies all payment is mandatory by the due date.”

She also notes that only 22% of businesses that experienced energy hardship accessed the deferred payment plan, while 33% of the respondents delayed paying their energy bill.    

The AER, however, is encouraging consumers to speak to their retailers in case of financial difficulty. It notes that under the national energy retail rules, retailers are bound to provide payment plans and hardship programs.  

“Any Australians struggling with their power bills should contact their energy provider as soon as possible to get help. Don’t ignore the problem and hope it will go away. Contact your retailer to ensure you are getting any concessions or rebates you may be entitled to and agree [sic] a payment plan you can afford,” Savage notes.

The AER is also encouraging customers to shop around and use their dedicated price comparison website to find the best prices and plans. They note that small businesses stand to save as much as $1308 or 28% off their bill by switching providers.  

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