Poles, wires biggest cost of electricity, regulator says

THE cost of so-called "poles and wires" utility infrastructure has been the biggest driver of electricity prices during the past five years, the Australian Energy Regulator (AER) has said.

Network costs now make up almost half of residential electricity bills, while wholesale electricity prices account for another third.

The AER's State of the Energy Market report for 2012 said some factors driving network charges up were unavoidable, but that there were also cost pressures difficult for electricity companies to justify.

"The recent overhaul of the rules for setting network charges means future network price reviews will ensure energy users pay no more than necessary for an efficient and reliable energy supply," AER chairman Andrew Reeves said.

Costs attributed to the carbon tax made up 8 per cent of a typical bill, while other green schemes, such as the renewable energy target, accounted for 5 per cent.

Mr Reeves said one emerging concern was "disorderly bidding" in the wholesale market when generators made bids without references to their underlying generation costs.

Mr Reeves said gas prices were likely to rise in the next few years, due to the pressure from international sales and the possibility of restricted supply in the country's east from 2016.

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