Explanatory Notes for graph “CPI Index Australia for all groups & Electricity” 13/9/2013 & 2/5/2014
The All Groups data is that for the national CPI figure which is the usual material for media
discussion.
The electricity data is what we are interested in but the “food & non-alcoholic beverages” data has
been included as a control and one which people are most familiar with from every day experience.
The “AEMC forecast electricity” refers to a recent issue from the Australian Energy Market
Commission entitled Electricity Price Trends Report. This part of the graph shows the expected
household prices to June 2015.
It is noted that the Australian Bureau of Statistics from which all data has been sourced has recently
re-indexed all their data to an index of 100 at July 2012. This explains why all the data coincide at
this point on the graph, which does not help in readability.
Significant time line points have been added to the graph: the passing of the initial RET legislation by
the Howard Government; the significant slope change for electricity prices from June 2007; the start
of the Carbon Tax.
It can be seen that for around 27 years the CPI and electricity prices increased at similar rates with
the latter slightly lower. But from June 2007 electricity prices increased at 6 times the overall rate for
the next 6 years. This pattern can be seen in the individual capital cities with differences which can
be attributed to local circumstances eg in Tasmania where the greater use of hydro-electricity
probably modifies the rate of increase.
A key finding of the above AEMC report is:
“AEMC Chairman Mr John Pierce said that on a national basis - after a projected average total price increase of 14% for
households in the year to 30 June 2013, it is expected that the rate of price increases will moderate to an average annual
rise of 3% for the two years to June 2015”
These rates of 14% for 1 year and 3% for 2 years are used for the AEMC graph forecast and include
allowance for the Carbon Tax.
Comments:
From examining this graphical presentation of the ABS data it is difficult to conclude otherwise than
that the rapid rise of the prices of electricity is due to the RET implementation from 2001. Clearly a
few years would have been required to design, construct and merge with existing infrastructure the
renewable energy installations which would have primarily been wind farms.
The AEMC and IPART reports both indicated that the impact of the Carbon Tax would have been
around an additional 6%. This can be seen with the jump in price after July 2012. But in reality the
slope of the graph from June 2007 did not materially change.
The AEMC report explained that the decrease in expected price increases to around 3% from July 13
is due to factors such as a pause in infrastructure spends after previous high rates and withdrawal of
some feed-in subsidies.
Note that this 3% rate is not much different to the long term all groups rate.
Update: May 2014:
Average household consumption is 6.35 mWh/year with costs in range $231 to $385 /mWh
depending on State.
At the introduction of the Carbon Tax, Treasury estimated the total cost to the average household
would be around $500 per year. The visual cost increases would be seen on electricity & gas bills at
around 10%. (Source Origin Energy)
The “typical household” on graph is for a specific average house in eastern suburb of Melbourne and
is below average in consumption (around 4 mWh/year but mid-range in costs at the recent figure of
$330/mWh.
The 10% Treasury figure is used in the forecast effect of any reduction as a once off reduction in the
absence of any more precise estimate. Note that on introduction of the Carbon Tax, AMEC and
IPART estimated a 6% impact.