My industry view on electricity prices, adopted frankly from the likes of AGL/ORG management, that I think is worthwhile sharing:
The electricity prices that we enjoyed over the last decade or so were unsustainably cheap…it was a period of new powergen supply being forced into the network, thanks to the Renewable Energy Targets (wind and some large scale solar build)…at the same time, on the demand side, households were lowering their electricity draw from the grid, by installing small scale solar units, and general energy efficiency improvements from new appliances or better awareness.
Eventually, the low grid prices did what they are supposed to do to the supply side - they caused some powergen closures (typically precipitated by units simply becoming old, and unable to justify sustaining investment)…and not long after, over on the demand side, the population growth finally overwhelmed diminishing household efficiency improvements, and total residential demand bottomed and is growing again.
Now to electricity users, the change in electricity prices has come as a shock, but it is a necessary one as we switch from oversupplied electricity markets (ie. short run marginal cost) to undersupplied (ie. long run marginal cost)…the sudden change causes discomfort and political heat…but my gut feeling is that there should not be another leg up in prices. Having said that, this new level is here to stay. We need to stay at these long run marginal prices to stimulate new powergen build, to satisfy the forecast ongoing population growth.
Only question left is - what gets built? Well renewables proponents claim that this price level is sufficient to build out their powergen plus firming storage. Well they are going to have to demonstrate it now. An economic project should be able to attract the necessary capital.
(PS. As I was writing this, all sorts of complicating side issues popped into my head, like commercial electricity rates/smelters/gas prices/LNG/policy uncertainty, but I think this post is already TLDR)