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January 01,2023

ESC Announces Victorian Default Offer 2025–26

| Author
Solar system on a small business

The Essential Services Commission (ESC) has finalised the Victorian Default Offer (VDO) for 2025–26, to commence on July 1st. At first glance, it’s a modest update. But beneath the surface, it reveals deeper shifts in electricity market dynamics, regulatory sentiment, and cost exposure that businesses, especially those managing embedded networks or operating multi-site portfolios, cannot afford to ignore.

A Quick Overview

  • Residential customers on a flat VDO tariff will pay an average of $1,675 per year, up $20 from last year
  • Small businesses will pay $3,620 per year, an increase of $90
  • Price movements vary across Victoria’s five distribution zones

While these changes may seem minor, they reflect larger structural increases in network and wholesale electricity costs and highlight changes in how retailers are expected to manage risk.

Source: ESC - Change in the average Victorian Default Offer annual bill by cost component, for small business customers with annual usage of 10,000 kWh, $ nominal 

Key Drivers for Change

Rising Network Costs

Network charges, regulated by the Australian Energy Regulator (AER), now make up around 35 to 40 percent of a typical small business energy bill. This year, they rose by an average of 4%, with variations depending on location, demand profile, and infrastructure requirements.

Wholesale Electricity Cost Methodology Shift

The ESC has changed how it calculates wholesale electricity costs:

  • It now uses 5-minute, import-only load profiles rather than net profiles
  • A new cost of solar exports has been introduced to reflect settlement risk during negative pricing events

This change better reflects how retailers actually buy electricity from the wholesale market. It also makes Victoria’s approach more consistent with other states. For businesses with solar or embedded networks, it could affect how feed-in tariffs are set and how retailers price their offers, especially during times of high solar exports.

Environmental Costs Down, But Not Gone

There’s been a small reduction in environmental scheme costs, thanks to lower federal liabilities and the removal of the social cost of carbon. These are charges retailers face to comply with government schemes like the Renewable Energy Target (RET) and the Victorian Energy Upgrades (VEU) program, which are passed through to customer bills. A reduction in these costs offers slight relief, but they remain a minor part of overall energy spend.

Retail Operating Margin Reduced

The default retail margin has been reduced to 5%, down from 5.3%, with the aim of keeping default offers reasonable while maintaining retail market sustainability. This margin represents the allowable profit retailers can earn on default contracts, so a lower margin puts downward pressure on standing offer prices but may also reduce retailer flexibility or appetite for low-margin customers.

What This Means for Your Business

Whether you manage a strata portfolio, operate an embedded network, or oversee a multi-site energy strategy, here is what you should take away from this year’s Victorian Default Offer.

The Victorian Default Offer Is Rising Slowly, But Market Risk Is Increasing

Small price changes might not look like much, but they can hide bigger risks in the background. Wholesale electricity costs have gone up slightly this year, and the market remains unpredictable. If your business is on a standing offer or near the Victorian Default Offer, you could be paying more than you need to without any added protection from market swings.

What Utilizer Can Do For You:

  • Benchmark current rates against market offers
  • Use competitive tenders to mitigate risk

Embedded Networks and Solar Operators, Take Note

The shift to import-only load modelling and the introduction of export costs mean retailers will change how they price contracts for solar customers. This is especially true in zones with high solar uptake like Powercor and AusNet.

What Utilizer Can Do For You:

  • Re-evaluate solar export strategies
  • Review contract structures for any solar pass-through implications
  • Assess whether your billing framework still reflects actual cost and value

Network Charges Are Locked In, So Optimisation Is Essential

You can't negotiate network tariffs, but you can work around them. With the ESC passing through higher AER-approved tariffs, tariff class, demand patterns, and load timing now have a significant role in managing cost. These factors influence how charges are applied, meaning the same usage can result in very different bills depending on how and when electricity is consumed.

What Utilizer Can Do For You:

  • Review tariff class eligibility and optimise load profiles
  • Explore demand response and time-of-use strategies
  • Ensure your metering and data analysis is up to date and actionable

Retailer Pricing Is Tightening

Retailers are dealing with narrower margins and more complex risk modelling. That may mean fewer discounts, stricter conditions, and less flexibility unless you are actively negotiating. As retailers adjust to tighter operating conditions and evolving cost structures, they are likely to be more selective about pricing and contract terms, especially for higher-risk or passive customers.

What Utilizer Can Do For You:

  • Help you avoid relying on published offers
  • Use your portfolio size and load profile strategically
  • Leverage our relationships and insights to structure stronger contracts

Default Pricing Comes at a Premium

The Victorian Default Offer is not designed to deliver competitive pricing. It exists to protect disengaged customers. For businesses managing multiple sites or embedded networks, it may provide a useful benchmark, but it should not be mistaken for a cost-effective solution.

At Utilizer, we help our clients move beyond default thinking by turning insight into action. We help you navigate complex cost structures, procurement opportunities, and market shifts to secure the best-available outcomes. Reach out today and let’s make sure you're not paying more than you need to.