Electricity service price

IBISWorld expects the electricity service price index to increase by 4.4% in 2025-26, to reach 162.2 index points. As of September 2025, the index measured 155.0 index points, a similar mark to the same time 12 months prior. However, the Australian Energy Regulator (AER) has reported escalated prices for electricity procurement futures in Queensland, New South Wales, Victoria and South Australia for Q1 and Q2 2026, a trend that is likely to place upwards pressure on downstream service prices over the back half of the year.

The electricity service price has surged over the ten years through 2025-26, increasing by just under 40.0% over this period. Higher natural gas prices have increased input costs for generators, placing upwards pressure on the costs of electricity generation. Australia has targeted liquefied natural gas (LNG) export opportunities, exposing previously low domestic gas prices to global market forces and boosting gas prices. The closure of the coal-fired Liddell Power Station in April 2023, which supplied baseload power to New South Wales and issues with the electricity grid's reliability, particularly in South Australia, have offset further pricing declines across the electricity supply chain over the past few years. The unpredictability of wholesale prices has also significantly hindered potential reductions in electricity service prices. Retailers are often reluctant to lower their prices proportionately when wholesale electricity prices plummet, primarily due to the highly uncertain and risky nature of the market conditions in which they operate. This makes electricity service prices stickier than those in wholesale markets.

The price of electricity for industrial firms includes generation, network and environmental costs, as well as margins for electricity retailers. According to the ACCC, over the decade through 2017-18, electricity transmission and distribution costs accounted for 38% of the increase in electricity prices. Environmental costs accounted for 15%, while retail expenses accounted for 8%. Wholesale electricity prices accounted for 27% of the growth in final prices. The remaining 13% is attributable to growth in retail profit margins. The ACCC deemed the growth in electricity prices to be a result of overinvestment in electricity transmission and distribution networks by private firms that sought to maximise their return on their assets, which energy market regulators guaranteed. As a result of this overinvestment, the AER placed limitations on the maximum allowable revenue for several operators. This move has successfully curtailed price growth, as electricity service prices are only expected to grow at an annualised rate of 1.6% between 2017-18 and 2025-26, compared to an annual growth rate of over 7.0% witnessed in the decade prior.

The pandemic had a moderate impact on the energy market in Australia. Energy demand from commercial operators affected by pandemic-related lockdowns dropped, leading to the electricity service price falling over the two years through 2020-21. However, these declines were partially offset by a spike in household-level demand.

From March 2022, the global coal and natural gas supply was significantly constrained because of the Russia-Ukraine conflict. Russia has historically been a major exporter of thermal coal and natural gas. However, the sanctions imposed on Russia in response to the conflict caused the prices of coal and natural gas to rise, placing upward pressure on costs for electricity service providers in 2021-22 and 2022-23, a trend that was passed on to consumers. Disruptions caused by natural disasters like flooding also adversely impacted coal miners' operations, reducing coal supply and placing further pressure on electricity service prices.

As supply conditions stabilised, coal prices trended downwards. Fewer weather-related disruptions improved operating conditions for coal miners, prompting them to ramp up production in 2023-24, bolstering coal supply. Similarly, natural gas prices fell as new exports from the United States eased supply issues caused by the Russia-Ukraine conflict. These falling input costs over 2023-24 placed downwards pressure on prices across the electricity supply chain, causing a decline in final service prices. However, the respite was short-lived, as prices trended upwards in 2024-25. The cost of electricity generated from Black Coal, Wind and Hydro, which combine to account for over 60.0% of electricity generation in the National Electricity Market (NEM), expanded significantly. In particular, the average value of hydro electricity increased by 55.4% throughout the year, with higher procurement costs translating to higher downstream service prices. Electricity demand across the NEM also increased by 1.9% in 2024-25, placing further upwards pressure on electricity service prices.

The NEM has gradually shifted from centralised large fossil fuel-based generation to an array of smaller-scale wind and solar generators and demand response practices. Australia's gradual shift to renewable energies has placed downwards pressure on electricity service prices, given their relatively lower costs compared to fossil fuels, limiting the impact of heightened fossil fuel input costs. The proportion of electricity generated in the NEM by renewables has jumped from around 24.9% in 2019-20, to more than 41.1% in 2024-25. This percentage has continued to trend upwards in 2025-26, reaching 45.0% in the first half of the year. These cost reductions have benefited downstream users, including manufacturers. Overall, IBISWorld forecasts the electricity service price index to expand at a compound annual rate of 3.5% over the five years through 2025-26.