Wholesale electricity prices will remain weak for the next couple of years, but domestic gas prices are expected to surge in the future, pushing up electricity bills, as Queensland's export gas projects come on stream.
Speaking at a conference earlier today, TruEnergy managing director Richard McIndoe made the forecast, although he expects that eventually the development of shale gas reserves will help contain electricity prices towards the end of the decade.
Weak wholesale prices are a mixed blessing for the large generators and retailers such as AGL, Origin Energy and TruEnergy, since it depresses the profits of their generation units, although it helps to give their retail arms greater flexibility to discount prices to maintain margins and protect their competitive position in the retail market.
Along with high prices, the strong Australian dollar has undercut manufacturing sector demand for electricity, coupled with mild weather, he said.
‘‘We’ve had some pretty mild temperatures here over the last few years, and therefore you haven’t seen the kind of peak demand, especially during summer,’’ Mr McIndoe said. ‘‘As a result [wholesale] prices are low.’’
Over the next three to five years, the launch of export gas projects in Queensland will see domestic gas prices rise, which will push up wholesale electricity prices, he said and it will ‘‘drive the bidding practices of coal-fired generators’’.
Additionally, strong Asian demand for coal, especially from India in the coming years, will keep coal prices high ‘‘and set wholesale [electricity] prices higher’’, he said.
These pressures will be especially notable as low-priced coal contracts in NSW roll-off, he said. But further out ‘‘solar and shale gas may bring prices down’’, he said.
Earlier this week, the Australian Energy Markets Operator slashed forecasts for new power generation capacity.
In recent trading, the wholesale electricity price has been holding at around $30 a megawatt hour, and has changed little over the past 15 years.