While petrol prices surge amidst growing conflict in the Middle East, electricity prices are doing the opposite.
The Australian Energy Regulator (AER) has forecast reductions in default market offer (DMO) prices across all three regions with which DMO applies – New South Wales, South Australia, and south-east Queensland.
DMO prices for residential customers in these regions would decline by between 1.3 per cent and 10.1 per cent, while small business prices would decrease by between 7.6 per cent and 21.2 per cent. This is if the AER’s 2026–27 draft determination is adopted in its current form.
The AER said decreasing contract prices for 2026–27 were contributing to lower wholesale costs.
“Contract price decreases reflect the lack of spot price volatility observed since June 2025, with the magnitude and frequency of high spot prices at the lowest level observed in several years,” the AER said.
“The lack of volatility is partly driven by higher output from wind and battery generators, which has reduced reliance on gas and hydro generation during evening demand peaks.”
South Australian wholesale costs have decreased less than other regions (contributing to a 1.3 per cent DMO decrease for households), as the state experienced several high-priced frequency control ancillary services (FCAS) events across July and August 2025.
FCAS revenue surged for South Australian batteries during this time, with very-fast (one-second) FCAS markets driving a significant portion of this. Neoen’s Hornsdale BESS secured more than half of its eight-month market revenue from January to August 2025 between July to August alone.
This was contributed to by network outages, including the planned outage of the Tailem Bend to Tungkillo 275kV line in South Australia which occurred intermittently between July 17 and August 19.
AER chair Clare Savage said the regulator was monitoring the impact of the conflict in the Middle East, with the draft determination completed before the current conflict began.
“While Australia continues to invest in new sources of renewable energy, our electricity system remains significantly exposed to the international price of fossil fuels such as coal and gas,” Savage said.
“Since the conflict began, we have seen increases in the price of forward wholesale electricity contracts for 2026–27. However, even at these recent elevated levels, these forward contracts are still currently lower than last year, and well below the levels seen during the 2022 energy market events.
“We will continue to monitor this closely before making our final determination of the default market offer in May.”
The AER’s draft determination 2026–27 is open for consultation until April 9 before final prices are set. The new DMO will take effect on July 1.
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