The Australian National Energy Market (NEM) has too many cooks – that is why our electricity costs so much.

Why? Because of missed opportunity, competing interests (financial and ecological) and the dreaded ‘P’ word – privatisation. Overlay the NEM with State and Territory parochialism, and it can’t help but be an expensive mess. That is why our electricity costs so much.

The NEM is an amalgam of many interests all needing to wring the last dollar out of the people that pay – you and me.

We asked Dom Gelonese, MD of Emberpulse, to explain the system. Dom has one aim in life – stop the energy rip-off. You can read all about how Emberpulse is helping consumers here. The article is about 2000 words and those wanting to stop the energy rip-off should read every one!

Too many cooks (yes, I spelt that correctly – not Crooks😊)

It is no use crying over lost opportunity now. The time for that was back in the 90s to build (or nationalise) a unified grid with a single authority dedicated to efficient cost containment running the show. Instead, we ended up with a patchwork NEM (more here).

Under NEM ownership of electricity generation is separate from transmission, distribution and retail while maintaining separate State systems. The only ‘national’ component is at the regulatory level, where two separate national regulators (the Australian Energy Market Operator and the Australian Energy Regulator) overlap within the continuing regulatory operations of State governments.

If you think that was a good idea, the NEM is yet to produce lower prices or more reliable power for households. Gee, sounds just like the NBN, doesn’t it? Bring back the Postmaster-General, I say.

electricity costs so much bill

Electricity 101

When you turn on a light, do you pause to consider how electricity is made, how it gets to the light, and why our electricity costs so much? Of course not.

electricity costs so much long bill

The answers may surprise you and explain why our electricity costs so much – in fact, energy prices in Australia are some of the highest in the developed world.

Energy generation

Most of the electricity that comes ‘out of the wall’ starts either at coal-or-gas-fired power stations or from renewable energy sources like solar, wind, hydro or battery storage.

coal fired power station
Don’t worry – that is steam, not smoke

Retail electricity prices (what you pay) start with the energy generation costs over 24 hours. For example, coal generators take time to be bought online and gain maximum efficiency. Let’s just say that producing a constant MW (Megawatt) output is what they are designed to do. Once they are running, changing output is a bit like trying to change course on the Titanic!

If all power came from coal-fired stations, it would be very costly and inefficient to have them running at full capacity when power usage varies so much over 24 hours. But remember these big generators cannot spin up or down at will.

With the abundance of renewables in Australia, the middle part of the day uses lots of solar energy. But the coal-fired stations that provide a baseload (needed at night when solar does not work) are then under-utilised and losing money.

Plus, Australia has one of the highest rates of residential solar uptake anywhere in the world. This creates challenges on the grid with a variety of feed-in electricity types. What happens if it is raining or cloudy? We need those old generators sitting there just in case.

The bottom line is that the highly volatile wholesale electricity generation market (what retailers pay for power at any one time) has to keep prices high enough to keep the old infrastructure there and running – just in case.