New energy scheme adding to bills, SA government admits

A new SA government energy scheme designed to shore up electricity supply at crucial times in South Australia is adding to household bills, the ABC can reveal.The FERM — or Firm Energy Reliability Mechanism — came into effect on July 1, and the ABC understands it is set to collect almost $44 million from South Australian energy users in 2026-27.The SA government, which set the FERM recovery amount, said the scheme was designed to deliver extra electricity into the grid, when required, to stop wholesale prices spiking and driving up electricity costs in the state.The government said the scheme was designed to deliver extra electricity into the grid. (ABC News: Chris Gillette)While not specifically listed as a cost on consumers' energy bills, the money is recovered by ElectraNet through SA Power Networks as part of the network cost component of the bill.The cost, which is believed to around $23 per household over 12 months, is passed on to consumers by retailers.Energy Minister Tom Koutsantonis admitted that the scheme had increased electricity bills for this financial year but argued that rise would have been higher without the FERM's introduction.Tom Koutsantonis says that without the FERM, prices would be a lot higher "going forward". (ABC News: Ashlin Blieschke)"Has it contributed? Yes, but take it out, I actually think prices would be a lot higher going forward without it," Mr Koutsantonis said."What I'm saying to you is, and what … I'm prepared to back my reputation on is, that the FERM has made sure the default market offer was not higher than it otherwise would have been."If there are shortfalls in power that the market is not meeting, that means we either have brownouts or you pay considerably more for your electricity costs."The Australian Energy Regulator (AER) in May listed the introduction of the FERM scheme as one of the reasons why the default market offer in SA had gone up.In the AER's final determination, South Australia's default market offer for 2026-27 was expected to increase by 1.4 per cent.Default market offer (DMO) componentsFinal determination DMO 2025-26Final determination DMO 2026-27Difference from 2025-26 to 2026-27Percentage differenceWholesale cost$858.80$842.80-$15.99-1.9Network cost$896.99$974.34+$77.35*+8.6Environmental cost$72.25$46.72-$25.53-35.3Retail cost$334.47$329.72-$4.76-1.4Retail margin$138.03$140.02+$1.98+1.4Total$2,301$2,334+$33+1.4Source: AER DMO prices final determination. *FERM costs are included in "Network cost"The regulator said the decision directly impacted 66,000 South Australian electricity users who are on the default offer.But the offer also acts as a safety net by setting the maximum, or ceiling, price retailers could charge their customers.In SA Power Networks' annual pricing proposal, the AER also cited the FERM as one of the drivers of cost for energy users."The increase in revenue is predominantly due to increased transmission costs (including costs related to the Firm Energy Reliability Mechanism), actual inflation and the revenue path set in the applicable determination," it said.The rise in SA was a contrast to electricity consumers in New South Wales and South East Queensland, who were told by the AER that their prices would be dropping.DMO flat rate (residential customers)Effect on pricesPrice changesNew South WalesDecreaseBetween -3.4 per cent ($66) and -5 per cent ($137)South East QueenslandDecrease-7.2 per cent ($155)South AustraliaIncrease+1.4 per cent ($33)Source: AERGovernment using FERM to smooth out pricesThe government will use the $44 million raised through FERM in 2026-27 to deliver extra electricity in two different ways.Firstly, Mr Koutsantonis said $20 million would be used to "incentivise" six new battery projects worth $2.2 billion.He said the projects would provide eight-hour storage and would come online in 2028 and 2029.The ABC understands about a further $24 million is going to AGL to keep its aging gas-fired power station at Torrens Island running over the next 12 months.In defending the FERM, Mr Koutsantonis cited costs associated with Torrens Island. (ABC News: Dean Faulkner)Mr Koutsantonis said the battery-related FERM costs added only $10 to the average household bill for the 2026-27 financial year, while the cost to keep Torrens Island operating was estimated at $13 per household for the same period.FERM a 'hidden charge'In its May submission to the AER on the FERM's guidelines, the South Australian Council of Social Service (SACOSS) said it had "deep concerns about the cost recovery mechanism for the scheme" through energy users."We submit [it's] regressive, inequitable and will disproportionately impact low income/high usage households and renters already struggling to afford essential electricity services," the submission said."There is no visibility of the actual costs of the FERM paid for by residential consumers in any of the of the pricing proposal documents."David Beattie, who manages several small residential buildings in the Adelaide CBD, said he was unaware of the FERM and the costs associated.David Beattie described the FERM as a "hidden charge". (ABC News: Simon Goodes)But he said he had been notified of a large jump in electricity prices, from July 1, to run the properties' electric gates and lighting."[For one block] our bill overall will go up 43 per cent for the year," Mr Beattie said."So with that, the new account for the year will be $725 — that's a $226 increase."I think if the government wants to start a new scheme, it should actually be part of taxation."It shouldn't be a hidden charge that you don't tell the public about, you just stick it on the electricity bill and make them pay the bill."Scheme 'takes away volatility'The state government's admission that there would be a cost to consumers came two months after Mr Koutsantonis told reporters there would be no cost to taxpayers, and one month after he said he did not think energy consumers would be out of pocket."It wasn't me trying to be cute or clever — it was just me saying, no, we're not using taxpayers money here," Mr Koutsantonis said."There shouldn't be a cost to energy consumers about the batteries."But in terms of administrative costs, I thought that was pretty obvious because of the [FERM] legislation that was passed."The government is using the $44 million raised in the FERM to deliver extra electricity in two different ways. (ABC News: Christopher Gillette)But Mr Koutsantonis said the electricity price rise would have been worse without the FERM, as the ongoing operation of Torrens Island, and the introduction of the six new batteries from 2028, would reduce the high wholesale electricity prices that drive up bills in South Australia."What the FERM does is takes away the volatility which gives you more stable pricing," Mr Koutsantonis said."The more generation you have in the system, the more battery storage you have in the system, the less risk there is."But SACOSS's chief executive Catherine Earl said households who were heavy users of electricity and did not have solar panels and batteries could face higher FERM-related costs.Catherine Earl says the scheme could disproportionately disadvantage low-income earners. (ABC News: Marco Catalano)"The low-income [earners] and the renters are paying higher bills and therefore paying more of these system costs," Dr Earl said."We are really worried about any predictions of increases in energy costs because we know there are so many people in our community at the moment who struggle to pay their bills and end up on hardship programs or with high energy debts."Energy is an essential service, we all need it, we need to make sure that the provision of energy is done in a way that we can afford."The SACOSS submission to AER also said the FERM would largely benefit businesses not consumers."The beneficiaries of the scheme will overwhelmingly be large industry and the South Australian government," SACOSS said in the submission."SACOSS submits … the FERM [is] not necessary to meet future [declining] South Australian residential delivered grid demand and therefore the majority of the costs of the scheme should not be borne by residential customers."