The Australian Energy Regulator (AER) is currently evaluating a range of potential updates and improvements to its annual Default Market Offer (DMO) determination. Among the proposals is a new tariff-based method for setting electricity prices and the expansion of consumer protections to include more renters and apartment residents.
On Wednesday, the AER released an issues paper aimed at determining the DMO for the year 2026–27, which regulates the maximum prices that retailers can charge customers on standing offers in areas such as south-east Queensland, New South Wales, and South Australia.
Recent Government Proposals
This publication follows the federal government’s announcement of a package featuring ten recommended modifications to the DMO’s regulatory framework, stemming from a review that sought to address concerns regarding the system’s current effectiveness.
One of the more notable changes is the Solar Sharer proposal, which would require retailers to provide all customers in DMO regions with at least three hours of free electricity in the daytime, leveraging Australia’s plentiful rooftop solar energy.
The federal government is conducting its own stakeholder consultation regarding the Solar Sharer Offer. Insights from this consultation are expected to impact the AER’s calculation methods for the DMO in 2026–27 (termed DMO 8).
Expanded Protections and Changing Price Structures
The additional recommendations outlined in the federal review have been detailed by the Department of Climate Change, Energy, the Environment and Water (DCCEEW). Collectively, these reforms aim to “eliminate unnecessary costs and enhance the protections” associated with the DMO. Specifically, the focus lies on adjusting how maximum prices are established and broadening access for new consumer demographics.
The review advocates for the AER to set a tariff cap based on distinct small customer categories, rather than merely establishing an annual price tied to a fixed usage amount. The proposed regulations suggest that from DMO 8 onwards, the DMO should be expressed in tariff terms, which would indicate a daily fixed supply charge in dollars and a usage charge in cents per kilowatt hour.
According to the AER, this shift would align the DMO closer to other regulated pricing structures, such as those seen in Victoria and regional Queensland, where customers have benefited from stabilised or lowered prices compared to their counterparts under the DMO in other states.
Future Plans for Embedded Networks
Another significant proposed change is the expansion of DMO protection to customers in embedded networks, which includes both residential and small business clients, starting in the 2027–28 period. Currently, only those customers served by exempt sellers are under the DMO’s protection.
The upcoming provisions would stipulate that prices for small customers in all embedded networks, regardless of being served by exempt sellers or authorised retailers, would be capped according to the DMO tariffs set by the AER. Additionally, those not included under the DMO limits will be covered by the maximum annual bill established by the AER, which may also introduce tailored DMO tariff types for embedded network users.
Government Commitment to Fair Energy Prices
In a statement to Renew Economy, DCCEEW reaffirmed that these proposed reforms aim to ensure that Australians are billed fairly for their energy usage. A department representative stated, “In our second term, we’re committed to pushing through reforms to ensure no household or business bears unnecessary costs.”
The emphasis on reforms aims to extend protections to all standing offer customers and small clients in embedded networks, including renters and apartment residents.
Market Analysis on Solar Sharer Offer
A recent market analysis by Morgan Stanley indicated that the Solar Sharer Offer could potentially reduce household electricity expenses significantly, while also altering the solar energy load curve. Their report estimates that qualifying households opting into the SSO could save around AUD 660 annually on their electricity bills, especially if Victoria also implements this initiative.
This shift in load could equate to a 500-megawatt three-hour battery, as noted by Morgan Stanley analysts Rob Koh and Samantha Edie, indicating a substantial impact on minimising the challenges posed by the duck curve in energy production.
However, the projections for retailers suggest a less favourable outlook, with anticipated financial losses reaching approximately AUD 70 million for major retailers like AGL Energy and Origin Energy in the 2027 financial year. This figure accounts for losses prior to mitigation strategies involving adjustments in pricing of non-free tariff components and a decrease in market discounting.