Energy pricing explained
Why have prices changed?
You may be wondering, why is Sumo increasing the price of my electricity? The short answer is, it is becoming more expensive to supply. Generation costs have risen 150% in the last 18 months.
Below we have given you the longer answer and it’s worth a read to give you a more in-depth understanding of why price rises are happening and what Sumo is doing about it.
- Generation
Climate change and ageing assets are forcing the closure of cheap coal fired power stations like Victoria’s Hazelwood, and to fill the void we rely on more expensive gas fired power to meet Victoria’s demand. As more of Australia’s coal fired stations come up for closure in the coming years, we will need to generate more and more electricity by other means such as gas to meet customer demand.
Renewable energy sources are still expensive and they don’t generate electricity all the time. The good news is they’re becoming cheaper, and batteries will help to supply electricity when renewable sources don’t, like at night when the sun isn’t shining.
Historically, gas lines have run from the Bass Strait direct to Victoria, giving us cheap and plentiful gas. However, Australia’s ever-growing gas network has seen this gas being delivered into New South Wales and Queensland, and for the first time in 40 years gas is now being shipped overseas to foreign buyers in Asia. Unfortunately, sending Australia’s gas overseas means that Australians must pay the higher global price for gas. And so long as we still rely on gas to generate electricity, this is also driving up the wholesale price of electricity.
- Distribution
Once electricity has been generated, it needs to be sent it to you via the poles and wires – this is done by ‘distributors’. The distributors own and look after the network that connects the electricity to your home.
Every few years energy distributors are given the go ahead from the Australian Energy Regulator to upgrade their networks and then charge that cost back, plus a little more, to you the customer. Australia’s networks need to cover large distances, but we also expect them to be very reliable (‘gold-plated’), which costs money. To illustrate, America has a total of 320 million people and a network worth $126 billion; in Australia we have 24 million people but a network that is worth over $100 billion! The cost of that network has been passed onto you, the consumer.
- Retailers
As a retailer (Sumo) we buy our energy from the generators, pay a fee to the distributors, and then sell this to you the customer. As a business, I’m sure you can appreciate we also need to charge a margin so that we can provide you service and support, such as getting your home connected. At Sumo we keep our costs to a minimum because we too are energy customers and understand the pain and frustration of mounting energy costs.
So, what is Sumo doing about rising prices? We are working hard to negotiate better power prices from those that produce energy. We are lobbying governments and engaging with national regulators to improve the situation for customers.
As a retail electricity supplier, we’re determined that all our customers are armed with the information they need to monitor their energy usage. That’s why we have introduced a proactive text messaging system so that when we see you are using more power than you usually do – which will result in higher bills – we’ll alert you and provide tips on how you can keep your bills down.
In the meantime, we’ll be working as hard as ever to ensure our customers have access to the best value.
