{"id":415679,"date":"2025-12-02T10:01:56","date_gmt":"2025-12-02T09:01:56","guid":{"rendered":"https:\/\/climatescience.press\/?p=415679"},"modified":"2025-12-02T10:01:59","modified_gmt":"2025-12-02T09:01:59","slug":"how-to-cut-the-electricity-price-in-australia","status":"publish","type":"post","link":"https:\/\/climatescience.press\/?p=415679","title":{"rendered":"How to Cut the Electricity Price in Australia"},"content":{"rendered":"\n
\"A<\/figure>\n\n\n\n

<\/p>\n\n\n\n

From Watts Up With That?<\/a><\/p>\n\n\n\n

Mike Jonas,<\/p>\n\n\n\n

Australia\u2019s retail electricity price has gone through the roof and is still climbing. This is a proposal for how to bring it down again. Something like this proposal already operates in many other countries, so this is not a step into the unknown. Actually, I would claim that over the last few years the Australian system has been forced further and further into a dark hole, and this proposal is for a large step into the light. Although large, the step is simple, rational, and inexpensive.<\/p>\n\n\n\n

The Basic Principle<\/strong><\/p>\n\n\n\n

The basic principle behind this proposal is:<\/p>\n\n\n\n

The purpose of the electricity grid is to meet demand at minimal cost.<\/strong><\/p>\n\n\n\n

This is very important, and the present disastrous situation is in large part because this basic principle has been discarded. Note that there is no mention in the basic principle of any need to pander to the needs, wishes and vagaries of electricity suppliers. The suppliers\u2019 only purpose is to meet demand profitably, and the proposed system\u2019s only purpose is to enable that at minimal overall cost.<\/p>\n\n\n\n

The Present System<\/strong><\/p>\n\n\n\n

The present system uses an auction mechanism to match supply to demand. Each supplier submits bids to supply certain amounts of electricity to given regions for upcoming 5-minute trading intervals. The Australian Electricity Market Operator (AEMO) runs a dispatch auction every 5 minutes and accepts bids cheapest first until they have enough to match expected demand. From this, they set a spot price for all accepted suppliers and all users. This system is known as the National Electricity Market (NEM).<\/p>\n\n\n\n

As currently operated, bids can be submitted day-ahead (or earlier) but remain re-biddable up to dispatch. This fuels volatility, because effectively there is just one short-term 5-minute-based system. It has been observed that: \u201c\u2026 regional electricity markets in Australia are characterized by relatively low levels of annual, weekly and intra-daily seasonal patterns, but are by far the most volatile markets in this study.<\/em>\u201d [1].<\/p>\n\n\n\n

The Proposed System<\/strong><\/p>\n\n\n\n

The proposed system is based on the fact that most demand is fairly well known in advance \u2013 AEMO know roughly what tomorrow\u2019s demand will be, they just don\u2019t know exactly how it will pan out minute by minute. So if AEMO can cater for most of the demand in advance, then they only need to be flexible for the relatively small part of demand that varies. The proposal is: There should be a binding day-ahead auction, by region, for specified quantities of electricity for specified periods of the following day.<\/strong>  The specified periods would range from an hour to the full 24 hours. In other words, AEMO can work out its expected requirement by region for each part of the following day, and lock supply in for most of that. The next day\u2019s 5-minute auctions then only need to deal with variations in demand, not the whole of demand.<\/p>\n\n\n\n

Variations of this proposed Day Ahead Market (DAM) system are used by many countries [2], and significantly reduce volatility \u2013 \u201cWe also find that electricity markets organized as day-ahead markets exhibit a significantly lower overall price variation compared to markets with real-time trading.<\/em>\u201d [1]. For suppliers, a day-ahead market also increases certainty. Businesses can plan better with certainty, and this factor alone will, in time, reduce overall cost [3].<\/p>\n\n\n\n

The present system already has mechanisms for handling situations like a successful supply bidder failing to deliver, expected demand failing to materialise, and organisations trying to game the system by eg. cartel operation or withholding supply. All of these mechanisms can continue. Some new provisions might be needed for the day-ahead market, such as deviation charges [4] and \u2018gross\u2019 bidding [5]. The present system also allows suppliers to have backup arrangements with each other, and these can continue too. So, for example, a solar company could put in a bid for several hours\u2019 supply to a nominated region for the next day and protect themselves by having a backup agreement with a gas company in case there are more clouds than expected.<\/p>\n\n\n\n

The point of this proposed system is that it matches the market mechanisms more closely to the patterns of demand. In other words, it aligns the market with the basic principle as stated above.  No kind of supply is favoured or penalised. Wind and solar companies, for example, whose supply is unpredictable, can still participate fully by getting backup agreements. The main difference from the present system is that suppliers become more responsible for variations in supply, allowing the market operator to concentrate more on meeting demand.<\/p>\n\n\n\n

The processing logic for the day-ahead auction is far from simple, but it isn\u2019t new \u2013 it has already been done. The USA\u2019s PJM, for example, optimises diverse bids into a least-cost 24-hour plan [6], and typically clears about 95% of the next day\u2019s demand. This forward-clearing approach has delivered estimated 10-20 % system-cost savings through better planning and lower volatility.<\/p>\n\n\n\n

Oh, and one more thing: there are no government subsidies or mandates in the proposed system. Removal of those, in time, cuts overall cost too.<\/p>\n\n\n\n

Implementation<\/strong><\/p>\n\n\n\n

It really should not take long to get the proposed system up and running.<\/p>\n\n\n\n

AEMO already uses linear programming (LP) for security-constrained economic dispatch (SCED). Extending it to a day-ahead market should not be all that difficult. In any case, equivalent commercial software \u2013 like GE\u2019s PROBE or Hitachi\u2019s Network Manager EMS \u2013 is readily available and licensed to other operators. At $A20-30M, the cost pales into insignificance beside Snowy 2.0\u2019s overruns. But it could make sense for one state or region to pilot it first before national rollout.<\/p>\n\n\n\n

With the greater understanding that should come from using a day-ahead system, it should be possible to improve the long-term planning (\u201cCapacity Market\u201d). In future, will a nuclear plant be cheaper in total than more renewables, for example? Certainly, Australia should use much more of its own gas and coal [2].<\/p>\n\n\n\n

Acknowledgement. Grok helped a lot with finding information, reviewing the article, and suggesting improvements. Please note that any errors are mine alone \u2013 I still have to check everything.<\/p>\n\n\n\n

References and Notes<\/strong><\/p>\n\n\n\n

[1] Electricity markets around the world<\/a> \u2013 Klaus Mayer & Stefan Tr\u00fcck (2018), Journal of Commodity Markets.<\/p>\n\n\n\n

[2] Countries using a version of DAM include Canada<\/a>, Norway<\/a>, Finland and USA (\u2018PJM\u2019 states)<\/a>. Their electricity prices are mostly lower than Australia\u2019s, and less volatile. Norway and Finland do have the advantage of plentiful hydro, but Australia has the advantage of cheap domestic gas and coal. It is noteworthy that Finland and the PJM states have some nuclear power, which is competitive in a DAM. See also [3].<\/p>\n\n\n\n

[3] Some countries that use a DAM have higher electricity prices than Australia, so some other things have to be in place (or absent) as well. Grok pointed out that these countries\u2019 high prices typically stem from external factors like high taxes, heavy renewables subsidies\/mandates, and gas import dependence.<\/p>\n\n\n\n

[4] Imbalance settlement price<\/a> \u2013 This example is from France. A price is applied to deviations from agreed supply. Note that there can be rewards as well as penalties.<\/p>\n\n\n\n

[5] PJM Operating Agreement \u00a71.10.01(b) (FERC Docket ER24-1234, filed Jan. 30, 2024: https:\/\/elibrary.ferc.gov\/eLibrary\/document\/20240130\/5073<\/a>). \u201cEach Generation Owner shall offer into the Day-Ahead Energy Market all of the output of each of its Generation Capacity Resources up to the Economic Maximum for such Generation Capacity Resource for each hour of the Operating Day, unless such Generation Capacity Resource is on a planned outage or derated for maintenance or other reasons.<\/em>\u201c. NB. I am assured that this citation and quote are correct, but I couldn\u2019t check them because I couldn\u2019t open the link. I could find Energy Market Must Offer Requirements for Generation Capacity Resources<\/a> which does show that suppliers must bid all their available capacity. This is called \u2018gross\u2019 bidding.<\/p>\n\n\n\n

[6] PJM Fact Sheet \u2013 Understanding PJM\u2019s Markets (2024)<\/a><\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Australia\u2019s retail electricity price has gone through the roof and is still climbing. This is a proposal for how to bring it down again. Something like this proposal already operates in many other countries, so this is not a step into the unknown. Actually, I would claim that over the last few years the Australian system has been forced further and further into a dark hole, and this proposal is for a large step into the light. Although large, the step is simple, rational, and inexpensive.<\/p>\n","protected":false},"author":121246920,"featured_media":415682,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","_crdt_document":"","advanced_seo_description":"Discover a proposal to reduce Australia's skyrocketing electricity prices through a binding day-ahead auction system for better demand management.","jetpack_seo_html_title":"How a Day-Ahead Auction Can Lower Australia's Electricity Prices","jetpack_seo_noindex":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":true,"token":"eyJpbWciOiJodHRwczpcL1wvY2xpbWF0ZS1zY2llbmNlLnByZXNzXC93cC1jb250ZW50XC91cGxvYWRzXC8yMDI1XC8xMlwvMEFRTzZLZVBrYW1FWjFsU0lHMDlxcjR2YVJ3Y04yVUhQTXJpaWlhd3VOeGUwbW5KY3RfMkNuTG5vdmJ4eXFMc0ZiRk5QZ2YzZWZWZ3NEd1pyakdUc3NzZTVIQzBUNUxnUTgxWnhVckVBTWQ5Y2tNcDNFVG1KdW5oU1hWbW92MUJVLTEtMTAyNHg4NjIuanBlZyIsInR4dCI6IkhvdyB0byBDdXQgdGhlIEVsZWN0cmljaXR5IFByaWNlIGluIEF1c3RyYWxpYSIsInRlbXBsYXRlIjoiaGlnaHdheSIsImZvbnQiOiIiLCJibG9nX2lkIjoxNTU4MTI0NDl9.Bilj7bEMNeSa6_qdyphsi-9bLR9_5Ra_bfRPFOmQGBoMQ"},"version":2},"jetpack_post_was_ever_published":false},"categories":[1],"tags":[691818216,691839933,691820781,691819431,691818728],"class_list":{"0":"post-415679","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","6":"hentry","7":"category-uncategorized","8":"tag-australia","9":"tag-australian-electricity-market-operator-aemo","10":"tag-electricity-grid","11":"tag-electricity-price","12":"tag-wind-and-solar","14":"fallback-thumbnail"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2025\/12\/0AQO6KePkamEZ1lSIG09qr4vaRwcN2UHPMriiiawuNxe0mnJct_2CnLnovbxyqLsFbFNPgf3efVgsDwZrjGTssse5HC0T5LgQ81ZxUrEAMd9ckMp3ETmJunhSXVmov1BU-1.jpeg?fit=1120%2C943&ssl=1","jetpack_likes_enabled":true,"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/paxLW1-1K8v","jetpack-related-posts":[{"id":279124,"url":"https:\/\/climatescience.press\/?p=279124","url_meta":{"origin":415679,"position":0},"title":"Subsidised Wind & Solar Debacle Delivers Massive Power Price\u00a0Shock","author":"uwe.roland.gross","date":"17\/09\/2023","format":false,"excerpt":"Every country that\u2019s tapped into the grand wind and solar transition has left power consumers suffering from Post Transition Stress Disorder \u2013 where households and businesses are being pounded with power prices at unprecedented rates.","rel":"","context":"In \"Australia\"","block_context":{"text":"Australia","link":"https:\/\/climatescience.press\/?tag=australia"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/09\/0fa3b59640174d73c81f0e357d55c7e082b014a5f.jpg?fit=1200%2C675&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/09\/0fa3b59640174d73c81f0e357d55c7e082b014a5f.jpg?fit=1200%2C675&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/09\/0fa3b59640174d73c81f0e357d55c7e082b014a5f.jpg?fit=1200%2C675&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/09\/0fa3b59640174d73c81f0e357d55c7e082b014a5f.jpg?fit=1200%2C675&ssl=1&resize=700%2C400 2x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/09\/0fa3b59640174d73c81f0e357d55c7e082b014a5f.jpg?fit=1200%2C675&ssl=1&resize=1050%2C600 3x"},"classes":[]},{"id":423296,"url":"https:\/\/climatescience.press\/?p=423296","url_meta":{"origin":415679,"position":1},"title":"Australians to Receive Free Midday Grid Solar Power \u2013 But Don\u2019t Charge your EV","author":"uwe.roland.gross","date":"26\/01\/2026","format":false,"excerpt":"Australia's high solar penetration often leads to excess midday power, sometimes resulting in negative wholesale prices or curtailment (wasted solar output). 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