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Victoria’s Energy Department predicts wholesale energy prices will be significantly higher than previously expected, in another sign of upward pressure on power costs in the state.
The new estimates, published in the Department of Environment, Energy and Climate Action’s (DEECA) latest annual report, anticipate wholesale electricity prices will range from $44.57 per megawatt-hour to $257.13 per megawatt-hour in the coming year.
Consumers have been battered by soaring electricity prices.Credit: James Alcock
The figures, which the department uses to calculate the value of complicated contracts, are significantly higher than those in the previous year’s report, which predicted a range between $17.15 and $155.02.
The new modelling highlights significant cost pressures on wholesale energy prices, just months after Infrastructure Victoria was warned these costs could double by 2030. Movements in wholesale prices are only one part of what customers pay in their bills, which also factor in transmission costs and retailer margins.
The department said it had updated its forecasts to accord more closely with the private sector because its contracts would be taken over by the revived State Electricity Commission, triggering the need for a different methodology.
In March, modelling provided to Infrastructure Victoria by consultants Aurora forecast wholesale electricity prices would peak in 2030 at more than double this year’s levels, up to an average of nearly $120 per megawatt-hour.
This would be driven by the impact of coal plant closures, which could lead to more energy being imported from other states. However, prices are expected to drop from 2035, once more renewable energy projects and storage come online.
Victoria’s wholesale electricity costs are typically lower than those in other states, averaging at $80 per megawatt-hour over the 12 months to September, partly because it is connected to three states that can shore up supply in times of need.
The significant range in DEECA’s price expectations, between $44 and $257 per megawatt-hour, also highlights the volatility of prices in the current market.
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Energy costs can be effectively zero on days when renewable projects are firing but can rocket under poor weather conditions or unexpected closures of ageing coal-fired power stations.
The Allan government says it expects Victoria’s costs will remain lower than those of other states, on average, throughout 2026 and 2027.
“Victoria consistently has the lowest wholesale electricity prices in the country, and are projected to be the lowest into the future,” a government spokesperson said.
“We’re focused on lowering the cost of living for Victorians. That’s why we’re fast-tracking more renewable energy projects to help drive down power bills by bringing more new renewable energy online.”
Opposition energy spokesman David Davis said the state government was failing its public commitments to lower energy bills.
“The figures used in the department’s own annual report and derived from a consultant modelling show wholesale electricity price estimates surge by between 66 per cent and 160 per cent,” Davis said.
“If these forecasts paid for by taxpayers are even half right, this will be a king hit for Victorian families already struggling with rising gas and electricity prices and a cost-of-living crisis.”
Davis also pointed to the latest consumer price figures from the Australian Bureau of Statistics, which showed the price of electricity in Victoria rose by 3.8 per cent in the September quarter, while gas rose by 8 per cent.
Grattan Institute energy program director Tony Wood said the key risks for Victorian energy prices were extreme weather, unavailability of coal-fired power stations and problems with connection points to other states’ energy grids.
He said Victoria had recovered from the price shock when Hazelwood power station had closed but the impact of another closure, Yallourn in 2028, would depend on whether authorities could deliver enough renewables in time, which was not going as smoothly as hoped.
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The new price predictions are contained in a financial section of the DEECA’s annual report that seeks to put a value on the energy contracts the government has signed with renewable projects supplying power to the SEC.
These agreements include a “contract for difference” model which means the government will provide compensation to farms and batteries if wholesale electricity prices dip below a floor price. In return, the state receives a windfall if prices soar above a certain level.
DEECA’s modelling has massively revised the value of these contracts, from $68.9 million in 2024 to $525 million a year in 2025, partly reflecting its new higher expectations for energy prices and indicating the government expects to make more money from these projects than it did previously.
In September, Energy Minister Lily D’Ambrosio delayed the government’s planned auctions for offshore wind projects until next year. She said industry needed more certainty over funding and called on the Albanese government to play a greater role.
Victoria has legislated a target of having two gigawatts of power from offshore wind by 2032. It is unclear whether the delay in the auction process will affect this goal.
Victoria delivered 42.4 per cent of its energy from renewables in the last financial year, putting it on track to reach its target of 40 per cent by 2025.
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