What drives the wholesale price of energy higher or lower?

Amber doesn’t set the wholesale price. Instead, it’s set at 30 minute intervals by the Australian Energy Market Operator (AEMO).

It’s normal for the wholesale price to fluctuate up or down in each 30 minute period depending on supply and demand, encouraging more power generation when the grid needs it, and less when it doesn’t.

There are a few key factors that drive the wholesale price up or down in the short-term: whether the sun’s shining or the wind is blowing, the level of demand on the grid, hot or cold weather, and whether important generators and large transmission wires are online and working.

In the short-term, wholesale prices can be cheaper than normal, or more expensive than normal, depending on these factors.

What are the typical causes of a higher than normal wholesale price?

These are the five most common reasons why the wholesale price might be higher than usual.

  1. 🌧  The wind’s not blowing, or the sun’s not shining (or both!). When the wind’s not blowing, and the sun’s not shining, this means that most of the grid’s power is being provided by expensive and dirty fossil fuels. This drives up the wholesale price.
  2. ⚡️  Lots of people are using power at the same time. Demand for energy is typically highest in the evening when people get home from work and put dinner on the stove between 5:30pm - 7pm. The wholesale price may be higher than normal during these times.
  3. 🥵🥶  The weather’s hot or cold. Heaters and air conditioners are typically the most power hungry appliances in the home. When it’s really hot or really cold thousands of households start running these appliances, putting lots of pressure on the grid and temporarily driving up the wholesale price. During extremely hot weather there’s also a higher risk of mechanical breakdowns affecting generators and transmission lines, which can suddenly reduce the available supply of energy.
  4. ⛔️  An important energy generator has gone offline. Whether it’s because of scheduled maintenance or an unexpected breakdown, an important energy generator (such as a wind farm, solar farm, coal-fired power plant, or gas-fired power plant) going offline can lower the available supply of energy in the grid, temporarily increasing the wholesale price.

    Generator maintenance is most commonly scheduled during the so-called “Shoulder” seasons (Autumn and Spring) when demand on the grid is normally lower than during hot summers and cold winters. Generators are normally switched off while the maintenance is being carried out.

    A typical pattern during maintenance periods would be to see higher wholesale prices for 1-2 weeks while some large generators are offline. Wholesale prices then fall back to lower levels once these generators restart.
  5. 🔌  An interruption to a major connection point in the grid. The high voltage cables used to connect sections of the energy grid together are called ‘interconnectors’. Interconnectors can be affected by damage or interruptions, either because of scheduled maintenance, or more commonly due to natural disasters, such as bushfires, or even tornadoes! Yep, we’re not making this up: a tornado took out the main interconnector between Victoria and South Australia back in January 2020.

Higher prices are usually caused by a combination of these factors.

For example, blistering hot days in summer cause lots of people to turn on their air-conditioners, putting a heavy load on the grid.

Extreme weather can also cause large coal generators to go offline due to mechanical failure.

And in the worst case, extreme hot weather can lead to bushfires that damage major interconnectors and disrupt the supply of electricity.

When the sun sets in the evening the rapid loss of solar generation combined with these other factors can cause serious price spikes in the grid (between $3/kWh and $19/kWh). Luckily, these kinds of price spikes are rare and typically only happen for a few hours every year. You can avoid these price spikes by reducing your energy usage as much as possible for the duration (we'll tell you when it's time). We've put together this guide with handy tips on what to do if there's a price spike.

🌃  Dealing with a dunkelflaute?

A less extreme example of grid pressure sometimes occurs during Autumn and Winter: what’s known in German as a dunkelflaute or a “dark lull” in English.

This is a weather pattern where we get cold, dark and still weather before dawn or after dusk, causing renewable generation to plummet close to zero during these times.

On days with these “dark lull” periods wholesale prices in the morning and evenings are typically higher than normal (but not extreme).

These periods of higher than normal prices can last 1-2 weeks before the weather system changes and we start getting more energy from wind generation during peak morning and evening times.

What are the typical causes of a lower than normal wholesale price?

There are four main reasons why the wholesale price might be cheaper than usual.

  1. 🌬  The wind is blowing, or the sun is shining (or both!). Renewables are now the cheapest form of power, so when the sun is shining and the wind is blowing, the wholesale price is typically at its best.
  2. 😴  Not many people are using power. There’s usually lower demand for power during the middle of the day, overnight, and on weekends. Low demand normally leads to cheaper prices.
  3. 🏖  The weather’s nice. People leave their power-hungry air conditioners and heaters turned off during nice weather. This reduces pressure on the grid and helps to keep the wholesale price low.
  4. 📈  There’s an excess supply of power in the grid. This is most common in the middle of the day when solar is at its peak. Meanwhile, many people aren't at home and can't take advantage of this cheap solar energy. The wholesale price of power can hit rock bottom and even go negative at these times (meaning you'll actually get paid to use power!) This is one of the reasons why we developed SmartShift™ to automatically run appliances during the middle of the day when solar generation is peaking.

Here's what it all means for your bills...

More expensive hours, days, or weeks are usually cancelled out by cheaper periods further down the line.

That’s why it’s important not to stress about hourly, daily, and weekly fluctuations in the wholesale price, and instead, to take a longer-term view of your savings.

📆 A typical day - wholesale vs. retail

This chart shows a typical pattern for wholesale price movements throughout the day. On this day, wholesale prices were more expensive than a typical retail offer from 6pm - 6:30pm. This is a time when lots of people get home from work and put dinner on the stove, which can put pressure on the grid and increase the wholesale price. Meanwhile, wholesale prices were cheaper at all other times. Overall, the wholesale price was cheaper on average than a typical retail offer on this day.

🗓 A typical year - wholesale vs. retail

This chart shows a typical pattern for wholesale price movements throughout the year, where the wholesale price can be more expensive than retail in 1 - 2 months, but is normally cheaper in all other months. That's why over the year wholesale prices are cheaper than fixed retail prices for most customers. Customers who're able to take a longer-term view of their savings will do best with wholesale prices.

One last thing...

The wholesale price in your area is affected by conditions throughout your state, and to a lesser extent, by conditions across the entire National Electricity Market (NEM). The NEM is a massive network of transmission lines spanning Australia’s Eastern seaboard. You can check out a map of the NEM here.

This interconnectedness comes with both pluses and minuses.

On the negative side, issues affecting the grid in one region, such as a heatwave or bushfires, can have flow-on effects throughout the entire East coast of Australia.

On the plus side, regions with more generation can share power with regions that have less, helping to keep the grid in balance.