Electricity Prices Set to Fall Up to 10% from July 2026: What the AER's Draft Ruling Means for Your Bills

Electricity Bill Relief Is on the Way, but There’s a Catch

After years of soaring energy costs, Australian households and small businesses are set to receive some genuine relief from July 2026. The Australian Energy Regulator (AER) released its draft Default Market Offer (DMO) for 2026-27 on 19 March 2026, proposing price cuts of up to 10.1% for residential customers and up to 21.2% for small businesses.

It’s the most significant proposed drop in benchmark electricity prices since the energy crisis triggered by Russia’s invasion of Ukraine in 2022, which sent household bills surging by more than 20% across most of the country.

But there’s a significant caveat hanging over the announcement: the modelling doesn’t yet account for the economic fallout from the ongoing Iran-US conflict, which is already pushing international coal and gas prices higher.

Here’s what the AER’s draft ruling means for your bills, how it varies by state, and what could still change before the final determination in May.

What Is the Default Market Offer?

The Default Market Offer is a price cap set by the AER. It represents the maximum amount electricity retailers can charge customers who haven’t actively chosen a competitive market offer. Think of it as a safety net, the most you’ll pay if you don’t shop around.

The DMO applies to households and small businesses in:

• New South Wales
• South-east Queensland
• South Australia
• The ACT

Victoria operates its own system called the Victorian Default Offer (VDO), regulated by the Essential Services Commission. Victoria’s VDO for 2026-27 was announced separately, with prices falling by approximately 3%.

Western Australia, Tasmania, and the Northern Territory have different regulatory frameworks and are not covered by the DMO.

It’s important to note that the DMO is not the cheapest deal available. It’s the benchmark. Most competitive market offers from retailers are priced below the DMO. If you’re on the DMO (or “standing offer”), you’re almost certainly paying more than you need to.

State-by-State Breakdown: How Much Will You Save?

The proposed price changes vary significantly depending on where you live. Here’s the draft household pricing:

Residential Price Changes (Draft DMO 2026-27)

Source: AER Draft Default Market Offer 2026-27, Victorian Essential Services Commission

Small Business Price Changes (Draft DMO 2026-27)

Small businesses stand to benefit even more than households, with south-east Queensland businesses potentially seeing price drops of more than one-fifth.

Why Are Prices Falling? The Renewables and Battery Effect

The draft price cuts are being driven by a structural shift in Australia’s electricity generation mix. For the first time, renewables and battery storage are putting sustained downward pressure on wholesale electricity prices.

Less Gas, Less Coal, Lower Costs

Wholesale electricity prices across the National Electricity Market (NEM) have been falling as solar and wind generation displace more expensive gas-fired and coal-fired power stations.

The numbers tell the story:

Source: AER, Australian Energy Market Operator (AEMO)

As coal and gas retreat, wholesale prices have moderated. Coal’s decline is partly due to falling international coal prices (which peaked during the Ukraine war), while gas usage has dropped as batteries increasingly handle peak demand periods.

Batteries Are Changing the Game

The Grattan Institute’s energy program director Alison Reeve identified batteries as a key factor: “The effect of those batteries is that they reduce the prices at peak times, which means that we’re using less gas and hydro, which were otherwise the most expensive forms of generation.”

Grid-scale battery installations have accelerated across the NEM in 2025 and 2026. Projects like the Victorian Big Battery (300MW), the Waratah Super Battery in NSW (850MW), and the Bouldercombe Battery in Queensland (200MW) are storing cheap midday solar energy and releasing it during expensive evening peaks.

This “peak shaving” effect directly reduces the wholesale price spikes that drive up the annual cost benchmarks used to calculate the DMO.

The Three Hours of Free Power Innovation

In a novel addition to the 2026-27 DMO, the AER is introducing a new tariff structure that offers three hours of free daytime electricity in most eastern states. This takes advantage of the fact that wholesale prices are now frequently at or near zero during the middle of the day when solar generation floods the grid.

The idea is to encourage households to shift energy-intensive activities (running dishwashers, washing machines, pool pumps, and EV charging) to the middle of the day when power is cheapest.

For households with flexible schedules, working from home, or with smart home automation, this could deliver meaningful additional savings beyond the headline price cuts.

The Iran Conflict: The Risk That Could Undo the Relief

The elephant in the room is the ongoing conflict in the Middle East. AER chair Clare Savage was upfront about the risk: “It is a very uncertain time, and we are seeing increases in international coal and gas prices. Australia’s power market is still exposed to international coal and gas prices, so we could see increases moving forward as a result of that conflict.”

The draft DMO was modelled using data from before the conflict’s most recent escalation. If international gas and coal prices surge (as they did in 2022 after Russia invaded Ukraine), the final determination in May 2026 could be revised upward, potentially wiping out some or all of the proposed savings.

How Exposed Is Australia?

Despite the growth of renewables, Australia’s east coast electricity grid still relies on coal for over half its generation and gas for peak demand. Both commodities are traded on international markets.

Key risk factors include:

• Gas price exposure. Australia exports most of its gas as LNG. Domestic gas prices are linked to international spot prices, which have risen 15-20% since the Iran conflict escalated in February 2026.
• Coal price exposure. Thermal coal prices, while well below the 2022 peaks, have started climbing again. A sustained increase would directly affect wholesale electricity costs in coal-dependent states like NSW and Queensland.
• Oil-to-gas substitution. In some markets, higher oil prices increase demand for gas as a substitute, pushing gas prices up further.

The AER acknowledged it is monitoring the situation closely. “At this point, we are cautious but calm,” Savage said. “We haven’t seen the increases we saw in 2022.”

The final DMO determination is expected in May 2026, at which point the AER will incorporate more recent wholesale price data and assess the Iran conflict’s impact.

How to Maximise Your Electricity Savings in 2026-27

Regardless of what happens with the final DMO, there are steps you can take right now to reduce your electricity bills.

1. Check If You’re on the DMO (and Switch)

The DMO is a price cap, not a target. Most competitive market offers from retailers are 5% to 15% cheaper than the DMO. If you haven’t compared plans in the past 12 months, you’re likely overpaying.

Use the AER’s free comparison tool at energymadeeasy.gov.au to compare plans in your area. In Victoria, use the Victorian Energy Compare website.

2. Shift Usage to Daytime Hours

With the new three-hour free power tariff and near-zero wholesale prices during the day, shifting energy-intensive activities to between 10am and 3pm can deliver real savings. This is particularly effective if you:

• Work from home
• Have a programmable dishwasher, washing machine, or dryer
• Own an electric vehicle that charges during the day
• Have a pool pump on a timer

3. Consider Solar and Battery Storage

Rooftop solar is already on more than 3.5 million Australian homes, but if you haven’t installed yet, the economics remain compelling. A standard 6.6kW system costs approximately $4,000 to $7,000 after rebates (depending on state) and can save $1,200 to $1,800 per year on electricity bills.

Adding a home battery (such as a Tesla Powerwall 3 or BYD HVS) costs an additional $8,000 to $14,000 but allows you to store cheap daytime solar and use it at night, further reducing reliance on grid electricity.

4. Check Your Eligibility for Government Rebates

Several state and federal programs can reduce your energy costs:

Check with your state government or retailer to confirm current eligibility and amounts, as programs are updated periodically.

5. Negotiate with Your Retailer

Retailers are more willing to offer discounts when wholesale prices are falling. If you call your current retailer and mention you’ve been comparing offers on Energy Made Easy, you may be offered a better deal on the spot. Loyalty doesn’t pay in the energy market.

What Falling Power Prices Mean for Household Budgets

For many Australian households, electricity costs have become a significant source of financial stress. The average annual electricity bill across the NEM was approximately $1,800 to $2,300 in 2025-26, depending on the state and household size.

A 10% reduction in south-east Queensland translates to roughly $216 back in household budgets. In Sydney (Ausgrid network), the saving is around $226. These aren’t transformative amounts, but in a cost-of-living environment where weekly household expenses have risen by up to $175 per week according to recent estimates, every dollar counts.

Combined with the potential for cheaper competitive offers (below the DMO) and the free daytime power tariff, the savings could be more substantial for households that actively engage with their energy plan.

The Broader Cost-of-Living Context

It’s worth placing electricity prices in the broader household expense picture. While power bills may fall, other costs continue to rise:

• Mortgage repayments are up after two consecutive RBA rate hikes, with the cash rate now at 4.1%
• Fuel prices have surged due to the Iran conflict, with unleaded petrol averaging $2.10 to $2.30 per litre in capital cities
• Grocery prices remain elevated, with the ABS food and non-alcoholic beverages index up 4.2% annually
• Insurance premiums continue to rise, particularly for property and motor vehicle cover, with some estimates putting annual increases at 10-15%

Falling electricity prices provide partial relief, but Australian households remain under significant financial pressure from multiple directions.

What Small Businesses Should Do

Small businesses have even more to gain from the draft DMO, with proposed reductions of up to 21.2% in south-east Queensland and 8.5% to 15.8% in other regions.

Key actions for small business owners:

1. Review your energy contract. Many small businesses are on legacy contracts with higher rates. The draft DMO provides a new benchmark to negotiate against.
2. Consider time-of-use tariffs. If your business operates primarily during daylight hours, a time-of-use tariff could deliver significant savings as daytime wholesale prices continue to fall.
3. Invest in energy efficiency. LED lighting, efficient HVAC systems, and smart energy management can reduce consumption by 10-30%. Combined with lower unit prices, the impact on your bottom line is compounded.
4. Explore business solar. Commercial solar installations (30-100kW) have shorter payback periods than ever, typically 3-5 years, and can eliminate most daytime electricity costs.

An accountant can help model the tax benefits of energy efficiency investments. Instant asset write-off provisions (currently available for businesses with aggregated turnover under $10 million for assets up to $20,000) can accelerate the financial return on solar and battery installations.

Looking Ahead: Will the Relief Last?

The structural trend is clear: renewables and batteries are making electricity cheaper to generate. As more solar, wind, and storage capacity enters the grid over the next five years, wholesale prices should continue to moderate in the absence of major supply shocks.

However, the transition is not linear. Gas will remain important for grid reliability during evening peaks and low-renewable periods. Coal plant closures (such as the planned closure of Eraring in NSW, now deferred to 2027) create transition risks. And geopolitical events, as the Iran conflict demonstrates, can quickly reverse price trends.

For now, the AER’s draft ruling is a positive signal. Australian households and small businesses should prepare to benefit from lower electricity prices from July 2026, while taking proactive steps to maximise their savings and build resilience against future price volatility.

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