The energy rebates have stopped, but the cost of fossil fuels keeps electricity prices rising

The national increase in electricity prices made up 15% of the entire increase in overall prices. That’s a massive amount given there are 87 different categories of things (from beef, fruit, and vegetables, to children’s shoes and books), that the Bureau of Statistics uses to work out inflation.

The big jump in electricity prices was down to two things – neither of which people have any control over and neither of which would be changed by the Reserve Bank cutting or not cutting interest rates next week.

The first is the end of state-based electricity rebates. These have gradually been running out and now they are all gone. But the impact on the inflation figures is quite stunning.

That “price” of electricity measured in the CPI is 1,695% higher now than it was a year ago. Now clearly, the price hasn’t gone up that amount, but last year the Queensland government were giving eligible households a $1,000 credit on their electricity bill. Now they are not. CPI measures what households pay, so that’s why there is such a big jump.

This might seem like the state-based rebates were a waste of time. Afterall why provide a rebate that will lower inflation when it only raises it when they end?

The reason is that rebates are designed to help households whose cost of living is increasing much faster than their income. They also help lower inflation to take the heat out of the system.

And it has worked. When the rebate began, inflation was running a 6%; now it’s 3.2% – now is the time to remove the subsidies.

The second reason there was a big jump in electricity prices is due to the decision by the Australian Energy Regulator (AER) to increase electricity prices for the east coast.

The AER announced in May that “from 1 July 2025, residential customers on standing offer plans will experience increases of 0.5% to 3.7% in SE Queensland, 2.3% to 3.2% in SA and 8.3% to 9.7% in NSW.”

And sure enough, Canberra and Sydney prices went up by a big chunk in the September quarter.

So why did the prices increase so much? The AER says this was “largely due to increased costs associated with wholesale electricity contracts” –  that is the price paid to generate electricity.

The AER pointed out one reason for this was “coal generator and network outages”. When coal fired power stations fail, more gas-fired electricity is used. This is more expensive because Australia’s gas prices are tied to the world price of gas, which has soared due to the invasion of Ukraine.  So gas being more expensive makes electricity more expensive.

Gas prices for households in the September quarter also went up 6.7% across the country. All of which to say is that yes, gas continues to be the major reason (along with old, broken-down dirty, coal-fired power stations) for why we pay too much for electricity. And yes, the gas industry is ripping us off.