Why do electricity prices change?

Posted 28 May, 2026 Andrew Rasch

When we turn on the kitchen lights or press start on the microwave, we don’t usually think about why they work. They just do.

But there are complex costs behind our readily available electricity. And like all costs, they’re subject to change. It’s easy to feel confused but read on and we’ll help demystify it for you.

There are key components that make up the cost of transmitting power to our houses and businesses. They include the price of wholesale electricity, labour and material costs, government schemes and maintaining the network’s poles and wires. These costs can change according to economic and market conditions, and the changes flow through to our power bills.

Who has the final say?

Each year, energy authorities such as the Australian Energy Regulator (AER) review the costs of electricity generation and transmission across certain states and regions. After the review, the AER updates the Default Market Offer.

What’s the Default Market Offer?

The Default Market Offer (DMO) serves as a safety-net price for electricity and protects consumers from excessively high prices on standing-offer contracts. The DMO is a reference price against other electricity offers, which makes it easier for consumers to shop around and see if they’re getting a good deal.

The AER has updated the DMO – effective 1 July 2026 to 30 June 2027 and known as DMO 8 – in South Australia. For residential customers on a flat-rate tariff, the DMO has increased by 1.4 per cent. For customers on a time-of-use tariff, the DMO has decreased by 1.1 per cent. 

The change to your bill may also depend on whether your plan includes a controlled load, which is usually separately metered on large appliances, such as hot water systems, pool pumps and underfloor heating.

What’s happening in South Australia?

Here are the changes for each component in SA, which show how the AER calculated the 1.4% increase (flat rate) to the DMO across 2026-27.

Wholesale energy costs (1.9 per cent decrease)
Average: 36.1per cent of your bill
This is based on the price energy retailers pay to buy electricity from generators. Wholesale costs have come down slightly this year as contract prices eased compared with last year.

Network costs 8.6 per cent increase)
Average: 41.7 per cent of your bill
Network costs are the biggest part of your bill and have increased this year. This is mainly due to how the cost is calculated; the AER now factors in the growing number of households with smart meters, which are charged a different network rate. This has pushed up the network cost component for flat-rate customers. 

Environmental costs (35.3 per cent decrease)
Average: 2.0 per cent of your bill
These costs have decreased for all customers, mainly due to decreases in government renewable energy target schemes.

Retail costs (1.4 per cent decrease)
Average: 14.1 per cent of your bill
Retail costs have come down slightly this year, reflecting lower day-to-day operating costs reported by retailers. These savings are partly offset by the growing cost of smart meter installations. 

Retail margin (1.4 per cent increase)
Average: 6 per cent of your bill
The increase in overall costs has affected the retail margin, which is set at 6.0 per cent of the DMO price for residential customers; this means changes elsewhere have a flow-on effect.

Dig a bit deeper

Of course, we’ve only skimmed the surface of this topic. If you’d like to learn more, you can read the AER’s May 2026 final determination on DMO prices here.

Summary of changes

The table below summarises the year-on-year movement in each cost component for SA residential flat-rate customers. 

Note: All figures are annual, inclusive of GST, and based on 4,000 kWh usage. Source: AER DMO 8 Final Determination, May 2026.