Electricity prices will fall with or without carbon price

Electricity prices in NSW should fall regardless of whether the federal government succeeds in scrapping the carbon price.

The Australian Energy Market Commission, which overseas the energy sector, has forecast unregulated electricity prices in NSW will decline by an average of 0.7 per cent a year from 2012-13 to 2015-16. The forecast is based on the existing carbon-pricing scheme introduced by the Labor government.

The commission says the ''significant driver'' of the predicted price fall in NSW will be the transition from a fixed price to a floating price under legislation passed during Labor's rule. The move to a floating carbon price from July 1, 2015, would be the key factor in an expected 5 per cent fall in NSW electricity prices in 2015-16.

The commission said the government's plan to abolish carbon pricing altogether would put further downward pressures on electricity prices in 2014-15 and 2015-16, but it has not yet been passed by the Senate.

The Environment Minister, Greg Hunt, said the commission's report confirmed that ''the carbon tax will, on average, make up 9 per cent of power bills'' in 2014-15.

The forecast also found that households can make significant savings if they opt to move off the regulated price tariffs.

They could cut their power bills as much as 16 per cent immediately, which would more than offset expected price rises.

The decline in the carbon price coupled with slowing spending to upgrade the power network are the main factors which will take the pressure off rising power prices, the chairman of the commission, the former head of NSW Treasury John Pierce said.

''Overall, the national average annual increase will be lower than the expected level of inflation at 1.2 per cent a year from 2012-13 to 2015-16,'' he said.

Households which moved off the regulated tariff in 2012-13 are able to save from around 5-16 per cent by shopping around,'' he said.

As many as two in five of all households have remained on the government-set electricity tariff, even though it is cheaper to move to competitive tariffs.

Many of the households still on regulated tariffs are lower-income households.

The unregulated power price in NSW is forecast to rise 1.4 per cent a year over the next two years and then decline by a sharp 5 per cent for the next two years until mid-2016.

''This primarily reflects the move from a fixed carbon price to a floating carbon price,'' the AEMC said.

The forecast is based on the anticipated reduction in the carbon price under the previous federal government's policy, which will see the carbon price decline from around $24 a tonne at present to a much lower market price from 2015.

The forecast has not taken into account the plan by the Abbott Government to axe the carbon price.

Even with the foreshadowed fall in the carbon price, environmental policies such as the climate change levy and other measures, along with the lower carbon price, will still be around 8 per cent of the electricity bill in the middle of the decade.

At present, environmental policies, including the carbon price, account for around 17 per cent of the electricity bill.

Surging power prices prompted households to cut consumption which has resulted in electricity usage declining by an average 1.2 per cent a year over the past five years, although over the decade ahead, demand is forecast to rise by 0.6 per cent a year, the AEMC said.

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