A flood of new renewable energy projects is likely to drive down household electricity bills, according to new analysis by government policy adviser the Australian Energy Market Commission (AEMC).

Key points: Wholesale cost of power going down as more renewable supply enters market

Wholesale cost of power going down as more renewable supply enters market Biggest reductions will be in South Australia, Queensland and Victoria

Biggest reductions will be in South Australia, Queensland and Victoria Longer-term future of power prices less clear

On a national basis, household bills are set to fall by 2.1 per cent — but price falls in the eastern states and South Australia are offset by increases in Western Australia, the Northern Territory and the ACT.

The price reductions will go some way to reversing big power bill hikes driven by increased cost and market volatility driven by the retirement of two brown coal power stations — Northern at Port Augusta in SA, and Hazelwood in Victoria's Latrobe Valley.

In its annual snapshot of household bill predictions called Price Trends, the AEMC said bill reductions were primarily driven by the reduction of wholesale costs for power generated in south-east Queensland, Victoria, SA and Tasmania.

"The reduction is driven by the estimated entry of 9,732 megawatts of accredited, committed or expected new generation and battery storage," the report found.

"The downward pressure this generation creates on wholesale prices more than offsets expected increases in gas and coal fuel prices over the period."

AEMC analysis showing the reasons for price increases since 2009. ( Supplied )

The vast majority of the new generation is from intermittent renewable sources like wind and solar (8,961 MW).

Just 566 MW of new thermal generation is expected to be added to the market by way of new gas power plants and upgraded capacity of existing coal plants.

Just over 200 MW of battery storage is also planned to be added to the grid.

The AEMC found the reduction in wholesale power prices would more than offset smaller increases in the cost of maintaining power poles and wires, and green schemes like the Federal Government's Small-scale Renewable Energy Scheme (SRES).

SA leads the way in power price drop

South Australia currently has the highest power prices in the nation, and is the state set to benefit most from new generation.

The annual power bill for an average SA household is expected to fall by about $120 (6.5 per cent) to $1,734 by 2020-21.

South Australians have the highest power bills in the nation. ( ABC News )

South-east Queenslanders can also expect big savings, with the average annual household bill expected to fall by 5.5 per cent to $1,299.

The savings are more muted in NSW (2.1 per cent), Victoria (2.3 per cent) and Tasmania (2.1 per cent).

Western Australia and the Northern Territory, which both sit outside the National Electricity Market, will face bill hikes.

The AEMC predicts increasing gas fuel prices will drive the average bill in WA up by $156 a year, while NT customers can expect a $47 increase largely driven by increased costs for the Darwin–Katherine power system.

ACT power prices are tipped to increase by 5 per cent over the next two years because of rising environmental and regulated network costs.

Sting in renewable tail

While the AEMC report finds significant development of new wind and solar photovoltaic generation is expected to put downward pressure on wholesale electricity prices in the short-term, the longer-term price benefits of the Federal Government's Renewable Energy Target are less clear.

The report points out the Large-scale Renewable Energy Target (LRET) provides financial incentives for increased quantities of renewable generation to enter the market even when demand is flat or falling.

But according to the AEMC, many of these generators are not suitable to offer the type of hedging contracts that power companies use to mitigate financial risk.

"The technical characteristics of intermittent generation are also not suited to offering the type of hedging contracts that thermal generators can offer," the report said.

Changes have also been recommended for how infrastructure is built. ( Sarah Bester: ABC News )

"In particular, intermittent generators without firming capabilities do not add to the supply of traditional swaps and caps.

"The overall impact of the LRET has therefore been to drive down wholesale prices in the short-term but, in the absence of policies and incentives to encourage investment in replacement generation and firming technologies, it contributes to periods of more volatile and potentially higher wholesale prices."

On Thursday, the nation's energy ministers signed off on a new reliability obligation, forcing power companies to hold contracts or invest directly in dispatchable energy to meet demand.

But the ministers were unable to reach agreement on reducing carbon emissions in the electricity sector, with New South Wales leading a charge of states against the Commonwealth.

Faster decisions needed on infrastructure

In a separate report, the Australian Energy Market Commission has recommended a series of changes to the way new transmission lines and interconnectors are built.

With a wave of new renewables projects expected to connect to the grid in the next few years, the commission argues the measures will protect consumers from paying too much.

The proposed changes include: