The Hidden Mechanics of Australia’s Energy Crisis – Why Prices Won’t Fall Under Current Policies
Australia’s electricity bills have become a persistent pain point for households and businesses alike. While political rhetoric often blames “greedy coal companies” or “fossil fuel lobbies,” a deeper dive into the mechanics of the National Electricity Market (NEM) suggests a more complex reality. According to Jared Holland of the Page Research Centre, the root cause lies not in the cost of generation, but in a market design that rewards intermittency and penalises reliability.
In a recent exchange at the Senate Select Committee on Information Integrity, Climate Change, and Energy, the disconnect between political narratives and market realities was laid bare. The following analysis breaks down the arguments presented by industry experts on why current renewable policies are driving volatility rather than stability.
While this refers to Australia’s energy pricing policies and drive to renewables, it has already been echoed in the UK recently. The point of presenting it here is show that Australian, UK and other governments are increasingly ignoring science to push ideology to the detriment of all their citizens. As a professional electrical engineer myself, working the power industry for over 15 years, I find Jared’s findings in his report, insightful, accurate and totally on-point.
The Myth of the “Cheapest” Energy
A central tenet of the current political push for an 80% renewable target is the assumption that solar and wind are inherently the cheapest forms of energy. However, this claim relies on a misunderstanding of how electricity pricing actually works in Australia.
The Bid Stack Mechanism
The Australian energy market operates on a “bid stack.” In this system, generators bid their electricity into the market from cheapest to most expensive. The market operator accepts bids until demand is met. Crucially, all generators are paid the price of the most expensive unit required to meet demand at that specific five-minute interval.
- Traditional Model: In the past, coal-fired power stations provided a stable “baseload,” running efficiently 24/7 at a consistent price (e.g., $50–$60/MWh).
- Current Reality: With the influx of solar and wind, the market is flooded with near-zero-cost energy during the day. This drives prices down, sometimes into negative territory. However, this abundance is fleeting.
The “Duck Curve” and the Evening Spike
The transition to intermittent renewables has created a phenomenon known as the “Duck Curve.”
- Mid-Day Crash: Solar generation peaks while demand is moderate. Prices crash or go negative. Coal plants are forced to run at low capacity or shut down, incurring wear and tear without revenue.
- The Sunset Cliff: As the sun sets, solar generation vanishes instantly. Simultaneously, residential demand spikes (people returning home, turning on appliances).
- The Price Spike: The grid must instantly replace the lost solar power. Coal plants, running at low capacity, cannot ramp up fast enough. Gas turbines fill some of the gap, but often, the final, most expensive unit required is a battery.
The Battery Paradox – Setting the Price
Perhaps the most startling statistic from the Page Research Centre is that batteries set the price of electricity over 23% of the time, despite producing less than 2% of the total energy in the market.
Why does this happen?
- Capital Recovery: Batteries are incredibly expensive to build (tens of millions of dollars). They only operate for short windows (e.g., 1–2 hours) during the evening peak.
- Monopoly Power: During these compressed windows, if a battery is the only source of power available to meet the surge in demand, it effectively holds a monopoly. To recoup its massive capital expenditure, it bids at a very high price.
- The Ripple Effect: Because of the bid stack rule, when the battery sets the high price, every other generator (coal, gas, and even the solar that was running earlier) gets paid that high price.
As Jared Holland noted, “Batteries set the price… and because there isn’t any other electricity in the market, I can charge whatever I want.”
Why Prices Will Not Come Down
The current policy trajectory, supported by both major political parties, relies on the belief that more batteries and renewables will eventually smooth out the grid. However, economic signals suggest the opposite is occurring.
- Investment Drying Up: As more batteries enter the market, they compete with each other, lowering the price they can charge during peaks. This reduces the profit margin for new battery projects. Without the promise of high returns, private investment in new storage is collapsing.
- System Costs: Even if generation costs were zero, the cost of the system—transmission lines, inertia machines, and backup capacity—remains astronomical. The UK has already acknowledged that carbonising their grid will not lower bills due to these infrastructure costs.
- Inefficiency: The current system forces all assets to operate inefficiently. Coal runs at low capacity during the day and ramps up frantically at night. Solar produces when no one needs it. Nothing operates at optimal efficiency, driving up the overall cost per unit of reliable energy.
Summary – What Drives Your Bill?
The following table summarises the factors driving high electricity prices according to the analysis of the current market structure:
| Factor | Traditional System (Pre-Renewables Boom) | Current System (Intermittent Focus) | Impact on Price |
|---|---|---|---|
| Primary Generation | Coal (Baseload) | Solar/Wind (Intermittent) + Batteries | Volatility: Prices swing from negative to extreme highs. |
| Price Setting | Coal/Gas (Stable bids) | Batteries (Setting price 23% of time) | High Peaks: Batteries bid high to recover capital, lifting prices for all generators. |
| Operational Efficiency | High (Running at capacity) | Low (Cycling on/off, ramping up/down) | Higher Costs: Wear and tear on coal/gas plants increases maintenance costs. |
| Transmission Needs | Localized generation | Massive long-distance lines (Solar/Wind hubs) | Infrastructure Costs: Taxpayers fund billions in new transmission lines. |
| Investment Signal | Stable, long-term returns (60+ years) | Short-term, high-risk returns (10-15 years) | Supply Shortage: Private capital flees the market due to unpredictability. |
| Reliability | Dispatchable (On-demand) | Dependent on weather + storage | Risk of Blackouts: Gaps in supply lead to emergency pricing. |
Conclusion
The argument presented by the Page Research Centre suggests that the path to lower electricity bills is blocked by the very policies intended to solve the climate crisis. By prioritising intermittent sources and relying on batteries to manage the evening peak, the market has created a system where the most expensive, least efficient sources dictate the price for everyone.
Until the market design is reformed to value dispatchability (the ability to generate power on demand) and density (energy produced per unit of land/machine), the volatility and high costs associated with Australia’s energy bills are unlikely to subside. As the UK has admitted, the cost of the system required to maintain this green transition may permanently exceed the cost of the fossil-fuel system it replaced.
Disclaimer: This article summarises the arguments and data presented by Jared Holland of the Page Research Centre in a specific interview. Readers are encouraged to consult official reports from the Australian Energy Market Operator (AEMO) and the Australian Energy Regulator (AER) for comprehensive market data.