The cost of electricity looks set to fall in all five of Victoria’s electricity distribution zones, the state’s pricing regulator has advised, cutting household energy bills by nearly $50 in the coming financial year and by around $170 a year for small businesses.
The Essential Services Commission (ESC) draft decision on the 2026-27 Default Victorian Offer (VDO) proposes that prices for domestic customers will decrease across the board by between $43 and $48 a year, compared to 2025-26, averaging out at $46, or a roughly 3 per cent drop.
Annual prices for small businesses on the VDO would decrease across the five distribution zones by between $165 and $179, compared to 2025-26, averaging out at a $172 decrease on last year (5%), the ESC says.
The VDO caps the price electricity retailers in the state can charge a small proportion of household and small businesses on standing offers.
But like the Default Market Offer (DMO), which is set separately by the Australian Energy Regulator for the rest of the National Electricity Market (NEM) states, it also acts as a sort of benchmark for all retail offers.
In publishing the draft decision for Victoria on Thursday, ESC chair and commissioner Gerard Brody said it had been made “with the best available data and with consideration for long-term interests of Victorian consumers with respect to price, quality and reliability of essential services.”
“If you’re someone who is willing and able to review your electricity plan each year, you’ll be able to find cheaper deals,” Brody said. “But if you don’t want to be swapping deals each year, the default offer is a good, fair option.”
The proposed reduction in Victorian electricity prices comes in an election year for the state, and at a time when the messaging from the federal Coalition opposition takes on an increasingly anti-renewables, anti-climate action flavour.
In Victoria, where the Labor government is targeting 65 per cent renewable generation by 2030 and 95 per cent by 2035, renewables now account for around 45 per cent of the state’s electricity mix.
Last month, state energy minister Lily D’Ambrosio said the state’s record investment in renewables had helped the achieve the lowest wholesale power prices in the country.
“Over the last year, Victoria’s average wholesale price was $78 per megawatt-hour, compared to $103 for New South Wales, $96 for Tasmania, $87 for South Australia and $85 for Queensland,” she said.
“Victoria’s draft default offer is going down,” D’Ambrosio added on Thursday in an emailed statement to Renew Economy.
“We know the cost of living is still tough for many Victorians. Only Labor will invest in the energy infrastructure needed to lower bills and crack down on big energy retailers taking advantage of Victorian families.”
For its part, the Victorian Liberal Party last month announced that it will introduce “strict new independent audits and economic impact assessments on new energy developments” if elected in the state poll in November.
“Communities across regional Victoria are increasingly concerned about the Allan Labor government’s approach to rolling out renewable energy projects without properly considering the long-term impact on agriculture and food production,” shadow energy minister David Davis said.
For Queensland, New South Wales and South Australia, the AER should deliver its own draft decision on the DMO in coming days. Traditionally, however, the VDO has delivered either bigger annual price reductions or smaller increases than the DMO. See last year’s decisions as a case in point.
For this reason, among others, the AER is weighing up a suite of proposed “updates and refinements” to its annual DMO determination, including a tariff-based approach to electricity price setting and the extension of protections to more renters and apartment dwellers.
The AER released an issues paper to this effect in November, just one day after the federal government unveiled a package of 10 recommended changes to the regulatory framework for the DMO, the result of a review to address growing concerns the market safeguard was no longer fit for purpose.
The reforms include the headline grabbing Solar Sharer proposal, which seeks to compel retailers to offer all customers in DMO regions at least three hours of free power in the middle of the day, courtesy of Australia’s abundant rooftop solar production.
For the Solar Sharer Offer, the federal government is running its own stakeholder consultation process here, feedback from which the AER says will inform its approach to how it is calculated as part of the 2026-27 DMO (DMO 8).
You can read more reports and analysis about the Solar Sharer Offer here, here and here.
The other nine recommendations emerging from the federal review of the DMO are set out here by the Department of Climate Change, Energy, the Environment and Water (DCCEEW).
As a whole, the reforms aim to – as DCCEEW puts it – “strip out unnecessary costs and expand protections” of the DMO. More specifically, the main changes focus on the way maximum prices are set and on bringing new consumer segments into the fold.
On price setting, the review calls for the AER to determine a tariff cap for specified small customer types instead of an annual price at a set usage amount.
That is, instead of setting a cap on total price of a standard offer payable for each customer each year, a price cap will be determined for each kilowatt hour of electricity consumed.
In Victoria, around 17 per cent of households (510,000) and 21 per cent of small businesses (61,000) are currently on the VDO, which also covers the apartments, retirement villages and caravan parks on embedded networks that cannot choose their own electricity supplier.
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Sophie Vorrath
Sophie is editor of Renew Economy and editor of its sister site, One Step Off The Grid . She is the co-host of the Solar Insiders Podcast. Sophie has been writing about clean energy for more than a decade.
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