Energy Cost Explainer:
The effect of Wholesale Prices

A common promise is that increasing renewable energy will drive electricity prices down. However, the way the market operates, as designed and managed by the Australian Energy Market Operator, means the reality is more complex. Electricity prices in the National Electricity Market are set every five minutes through a bidding process. Generators submit offers stating how much electricity they can supply and at what price. These bids are ranked from cheapest to most expensive until demand is met. The final, highest bid sets the price paid to all generators. This means even generators producing electricity at very low cost are paid the same price as the most expensive generator needed at that moment.

For electricity to be genuinely “cheap” or close to free, every bid required to meet demand would need to come from low-cost renewable sources. According to AEMO’s 2024/25 reports, there were zero 30-minute intervals in which all electricity was renewable. Most of the time, higher-cost generation is still required to keep the system stable. Gas-fired Generators often play this role because they can respond quickly when wind output falls or solar generation fades. As a result, gas prices frequently set the electricity price for everyone.

This matters for households because peak demand typically occurs at breakfast and dinner, when families are cooking, heating, cooling, and using appliances. These are exactly the times when firming generation is most needed, and when prices are often highest.

Even with large amounts of wind and solar, firm supply remains essential. Without competitive gas supply or alternative firming technologies, wholesale prices remain exposed to gas costs.

The commercial and economic consequences of other state governments’ declarations to curtail gas exploration over the last 5 -10 years, to address emissions, which in themselves are valid considerations, but the obvious impact is the market imbalance. Not enough gas, therefore higher prices, which then drives electricity pricing. Energy Ministers cannot claim ignorance; this was always going to happen.

Projects such as Marinus Link are often promoted as lowering wholesale prices by allowing more trading between states. However, even if some price smoothing occurs, it is increasingly unlikely these benefits will outweigh the substantial increase in network charges consumers will face regardless of market outcomes.

Cheap generation alone does not guarantee cheap electricity bills.