The Australian Energy Market Commission (AEMC) today released its analysis of residential electricity prices over the next decade, showing how Australian households could significantly reduce their total spending on energy – including electricity, gas, and petrol – through a well-managed transition to electrification.
The comprehensive analysis represents a new approach from the AEMC, extending from a three-year to a ten-year outlook to better capture long-term trends and provide deeper insights into what drives costs as Australia's energy system transforms.
Rather than just examining electricity prices, the analysis also considers how households' total energy costs or their 'energy wallet’ will change as they electrify transportation, heating and cooking.
AEMC Chair Anna Collyer said the findings demonstrate both opportunities and challenges ahead.
"Our modelling shows that with effective planning and investment, Australian households could see their total energy spending fall substantially over the next decade through electrification.
"However, we need to ensure this transition is well-managed and equitable, so that the benefits are accessible to all households, not just those who can access new technology immediately.
"This 10-year outlook provides new insight into how household energy costs could evolve as Australia's energy system transforms. While the overall trend is encouraging, achieving these benefits requires coordinated action across the sector,’’ Ms Collyer said.
Key Findings:
Under our base case analysis, residential electricity prices across the National Electricity Market could be around 13% lower in ten years' time, if renewable energy and infrastructure development proceeds as expected.
The analysis shows prices initially dropping as new renewable energy supply connects to the grid. Network prices are also projected to decline despite significant investment, as increasing household electricity use helps spread these costs across a larger consumption base.
Under this base case scenario, aligned with AEMO's Integrated System Plan projections, electrification would lower total household energy expenditure by nearly $1,000 per year – or by 20% – on average by the end of the 10-year outlook.
Individual households who electrify could see even larger benefits, with potential reductions of up to 70% in their total energy costs.
The outlook depends on coordinated planning and timely investment in transmission, generation, and effective integration of household energy technologies.
Regional Outlook
"While different regions face different challenges and opportunities in this transition, our analysis finds the overall trends in residential electricity prices are generally consistent across the National Electricity Market.
‘’This reflects how the key drivers, like the significant build-out of renewable generation and growing household electrification, are having similar impacts on costs across the interconnected jurisdictions,’’ Ms Collyer said.
Our modelling accounts for each region's unique circumstances, including infrastructure needs, existing generation mix, and policy settings. Under the base case, the analysis shows that over the 10-year outlook:
Victorian prices are projected to fall by about 9%, remaining below the national average, with a larger projected increase in demand due to rapid electrification, helping to keep network prices lower by using network infrastructure more intensively.
Queensland prices show a similar trend to the national outlook, with prices projected to fall by 15%, though there may be slightly more upward pressure on wholesale prices towards the end of the period.
South Australian prices are also projected to fall by 15%,but remain slightly higher than the national average due to elevated wholesale costs, though network prices are declining.
New South Wales prices follow national trends with prices projected to fall about 14% over the outlook.
ACT prices are projected to decline by 31%, a larger decrease than the national trend, reflecting the territory's Large Feed-in-Tariff scheme which offsets movements in wholesale prices, and a reduction in network prices.
Tasmania maintains the lowest prices of all regions but could see an increase in prices of about 6% towards the end of the period.
Renewable Energy Target (RET) and state-based energy efficiency schemes are expected to have minimal impact on overall prices (around 0.7c/kWh at national level).
Understanding Total Energy Costs
The report introduces the concept of an 'energy wallet' – which describes the total amount a household spends directly on energy, including electricity bills, petrol for cars and gas for heating.
"The traditional way of looking at just electricity bills doesn't tell the full story anymore. As households electrify their cars, heating and cooking, they'll see their electricity usage increase but their total energy costs – their 'energy wallet' – could significantly decrease,’’ Ms Collyer said.
“While the energy wallet modelling doesn’t cover the purchase costs, such as buying an EV, we can assist customers weighing up these decisions by providing them information about the savings they experience if they were to make a decision to incur those up front costs”.
For example, electric vehicle owners could save around $2,000 per year on fuel costs alone, with these savings starting from the date of purchase. Importantly, these benefits don't require complex optimisation of charging times - though households can save even more by charging during sunny periods when solar generation is at its peak.
Critical Success Factors
The report identifies several factors crucial to achieving cost reductions:
Timely development of transmission infrastructure
Successful integration of renewable energy and storage
Effective coordination of household energy resources like solar, batteries, and electric vehicles
Well-planned electrification of homes and transport
The AEMC is actively working to support these outcomes through initiatives including our Electricity Pricing Review, which is examining how pricing structures can better support the transition. This work also complements other initiatives such as the government's Consumer Energy Resources (CER) Roadmap.
Ensuring an Equitable Transition
The AEMC recognises that not all households will have equal access to cost-saving technologies.
"While some households will be able to significantly reduce their energy costs through solar panels, batteries, and electric vehicles, others face barriers to adoption. This highlights the importance of considering equity in policy development," Ms Collyer said.
These barriers include rental arrangements, housing that can't accommodate solar panels or electric vehicle chargers, and the upfront costs of new technology. The analysis emphasises the importance of ensuring the benefits of the transition are shared across all household types.
Looking Ahead
Our analysis shows two main factors will shape energy costs over the coming decade. The first is the significant build of new renewable generation and storage. This new generation, combined with the careful management of coal plant closures, will help moderate electricity prices.
Secondly, while significant transmission investment lies ahead, the impact on electricity prices is expected to be moderated as these are shared across growing electricity use.
As more households and businesses electrify, leading to a projected 23% increase in electricity consumption, network costs are spread across a larger user base.
''The potential for lower household energy costs is clear, but it depends on getting the transition right. This means smart, timely investment in infrastructure, effective integration of new technologies, and ensuring the benefits are shared across the community," Ms Collyer concluded.
