Back in April, it was reported that wholesale electricity prices had gone up around 140% since March 2021. Since then, they’ve continued to rise. Wholesale prices make up about a third of the average electricity bill, so we wanted to shed a little light on why this is all happening.
Prices on the wholesale electricity market are constantly changing. As a retailer, part of our job is to understand what the market’s doing – and what it might do – and lock in prices to protect customers from price volatility. That way, instead of your prices changing every five minutes (as they do on the wholesale market), they’ll usually only change once or twice a year.
While we normally factor in wholesale fluctuation when we set our prices, the level of volatility we’re seeing now is relatively rare – rather than a single event causing disruption, a combination of forces is putting pressure on the market in different ways.
Coal prices have increased significantly over the last year in response to a few global events. It began in July as the world emerged from the pandemic, returning to life (and energy use) as normal.
Then earlier this year, countries started to cut their Russian fossil fuel imports, creating more demand for coal and gas from other countries which, when demand is already high, causes the price to rise.
Flooding in coal mining regions of Australia have also caused supply disruptions, suspending operations at the mine, and cutting off transport options.
As power stations get older, unplanned outages happen more often as a result of technical faults. Of course, when there’s less electricity being produced, there’s less supply, which leads to higher prices.
In response to the higher price of coal, some generators are also deciding to only come online at certain times, to make sure they can still run profitably. Fortunately, this is generally when low-cost alternatives (like solar) are generating instead.
Maybe – some people are speculating that in the face of high coal prices, more people are going to see the value in investing in renewable alternatives instead. If we had our optimist hats on, we’d say that this spike in fuel prices could lead to greater investment in renewables. As well as being far better for the planet, it would keep coal prices down while we transition to cleaner energy.