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Understanding wholesale electricity

In times of high demand, energy generation is increased to meet consumer needs. Understanding how and why this happens can help you better understand your energy bill.
5 min read
Published on 09 Sep, 2022

The wholesale electricity market sounds a little daunting – but understanding it could help you make better decisions with your energy use and understand your energy bill.

The national energy market is constantly producing energy to meet your consumption on a real-time basis. In times of high demand, energy generation is increased to meet the needs of consumers – often resulting in a higher market price for electricity. Understanding how and why this happens can help you better understand why your energy bill changes monthly.

Why (and how) do prices change?

To understand this, we have to unpack the different forms of generation that are used based on demand. 

In times of low demand, plants that utilise black or brown coal generation are mainly used to produce energy. This is because their operating costs are low, and they are slow to start and shut down. Think of these as the general, run-of-the-mill energy producers most of the time.

Info-graphic outlining the wholesale electricity system

When demand ticks up it’s known as intermediate demand or daytime demand. This energy is provided by combined cycle gas turbine (CCGT) plants. They’re quick to start, flexible and their costs tend to sit in the middle of the market.

During a blackout, the hottest day of the year, or other high-demand events, plants with low capital costs but high operational costs are used. These plants are usually run by open cycle gas turbine (OCGT) or hydro generation, as they can be ramped up very quickly to meet demands.  Their energy generally costs the most for consumers to use.

Depending on the demand, the network will pull from one, two or even all three of these sources at once. 

The price of electricity at any given time is determined by bids made by generators, based off how much electricity they are willing to supply and the price they want to receive within a five-minute dispatch interval.

To protect the consumer, generators are dispatched to your home or business in price order from lowest to highest up to the level required to match demand – so you’re not paying more than necessary.

Batteries can play a role in the wholesale energy market

Today, the Australian energy market is transforming right before our eyes. It’s become more than a collection of centralised power generators – home solar batteries have now joined the grid.

How is this possible? This is thanks to the AGL Virtual Power Plant (VPP) – a collection of solar batteries in homes and businesses talking to each other through cloud-based technology. Through this connection, excess solar power in the batteries can be sent out to the grid in peak periods. It’s a way to reduce stress on our network that’s powered by the community, for the community. 

Solar panels on top of a house in Adelaide

And, since it’s charged by Australian sunlight, it’s also reducing our reliance on non-renewable energy resources. The environment, the grid and the community all benefit. But so do battery owners, who get paid for any power they share with the wider network. 

What does this mean for the future of our electricity market? It means shifting to a two–sided market that puts more power in your hands by allowing you to generate and share energy and get directly involved in the market. 

How can AGL help?

We’re always looking for solutions that make energy use more efficient and affordable.

That’s why, in addition to creating the VPP, we also have the Peak Energy Rewards program. It helps you save by alerting you of peak energy usage events. If you use less power during those times, you could receive bill credits and save. 

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