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Seems the eastern states are competing for storm severity, and it’s not a competition any of us really wants to win. The cost of so many natural disasters coming one after another is only beginning to be calculated by insurers - but there are more immediate numbers to worry about.

One of the most urgent repercussions of the freak storm that knocked out Victoria’s power grid, is that electricity supply to that state is now restricted. 

Experts are warning power bills could jump 25% overnight this winter if the state’s electrical grid recovery takes too long. The loss of vital utilities infrastructure left more than half a million Victorian homes without power, and included: 

• Damaged transmission lines. 

• An entire power station offline.

Around 1.5 million people went without electricity for hours on a sweltering afternoon. Many were left without power for days and some households are still waiting to be reconnected.

Wholesale price goes wild

The outage caused more than just hot and bothered customers. Your power usage is measured - and billed to you - in megawatt hours and after the storm hit, the wholesale power price in Victoria shot up to a whopping $16,600 per megawatt hour, compared to $299.98 in NSW and just $60.39 in Queensland.

The wholesale power price, also known as the spot price, is a fluctuating price point that responds to supply and demand, representing the ‘market’ rate for that state at that point in time.

So, Victoria’s wholesale power price went through the roof when their power generation infrastructure was damaged. When demand is high and supply is low - well, you get a price hike.

How does this affect my power bill?

A momentary spike in wholesale prices like that shouldn’t have an immediate impact on your electricity bill, as you’ve most likely signed a contract with a retailer or are on the Default Market Offer (DMO). In Victoria, you have the Victorian Default Offer (VDO) instead of the DMO but both of these work more or less the same way.

The DMO is essentially a price cap on how much energy retailers can charge customers on their default plan, for those who can’t or won’t shop around. The DMO is updated every year in March, with the new price going live on 1 July.

When the regulator announces the new prices, they factor in any increase to wholesale costs the power companies are facing. So, if Victoria’s spot price remains too elevated for too long, the regulator may have no choice but to significantly raise prices in July - and not just in Victoria.

Some experts, like Compare Club’s General Manager of Utilities Paul Coughran, says this increase could be as much as 25% this year, if Victoria’s damaged power infrastructure can’t be brought back online soon enough.

This would be on top of the 25% increase in the DMO last year, and coming as we turn our thoughts to winter, and the need for home heating.

“The jump last year was as a result of coal power plants being offline for several months,” he says.

“We then had a situation where our redundancy (gas fired plants) was experiencing huge price spikes due to the war in Ukraine. So that's a 25% increase year on year right now. “

Can anything be done?

When power stations go down, temporary generation is possible using gas- and coal-fired generators to fill the gap. But the pricing problem still remains, as the cost of gas and coal in these situations jumps dramatically.

Recognising this problem and soaring energy bills in general, the Albanese government implemented caps on gas and coal prices in late 2022. In April last year, those caps were extended until 1 July 2025.

No announcement has been made on whether the caps will be extended again, but the government is, apparently, working with gas suppliers to expand supply.

Mr Coughran says it’s essential that the government officially extend these caps now because the wholesale market buys energy supply two or three years in advance.

“If the cap doesn't look like being extended, this will drive up those prices exponentially beyond that date,” he says.

“At a time when cost of living is out of control, we need those caps locked in for longer. The government needs to intervene now, otherwise we could see 45 per cent price rises year on year."

The government says it remains committed to easing cost-of-living pressures, hinting at possible relief in the March budget, but it’s still tight-lipped on the gas and coal price caps.