The electricity system in Australia is adjusting to an increase in the overall amount of risk brought about by the increasing pace of the energy transition. This paper finds this will inevitably result in higher prices for everyday Australians. The mechanism through which this risk becomes cost is electricity retailing. 

The core service of retailers – turning volatile wholesale power into stable fixed-price contracts for customers – is becoming fundamentally harder and more expensive. The paper proposes that if the energy transition continues, Australia will continue to see higher prices for consumers, more retailer failures and less market competition. The problem is due to the intermittent generation that is being forced into the system and the retiring of dispatchable thermal generation – driven by the government’s Net Zero ambitions and the ‘82% by 2030′ renewable energy target. 

Key findings

• Wholesale price volatility is rising sharply, with extreme price spikes becoming more frequent, at all times of the day. The average wholesale price has also increased, driven by fuel costs, supply disruptions and the integration of renewables.
• The so-called ‘duck curve’ – a distortion in daily demand and price patterns caused by high rooftop solar penetration – makes hedging more complex and expensive.
• Rooftop solar has created a hidden cross-subsidy: non-solar households are effectively paying more for their electricity, as retailers are forced to pass through losses from solar customers.
• Compounding the challenge is a declining supply of derivative contracts, primarily due to the retirement of dispatchable coal generation. Intermittent renewables such as wind and solar are unable to provide firm derivative products, leading to higher costs for derivatives.