TL;DR: Up to half your South Australian bill is network charges for poles and wires, and most of the rest tracks the price of gas. Renewables push wholesale prices down, not up, through the merit order effect.
What are the true drivers behind South Australia's high electricity prices?
Two things: gas, and poles and wires.
Gas-fired generation sets the wholesale price far more often than its share of generation suggests, because of how the market clears. When international gas prices rise, South Australian electricity follows, regardless of how much wind and solar is running.
Then there is the network. Building, maintaining and upgrading the lines that reach a geographically dispersed population costs a great deal, and those charges can be up to 50% of a residential bill. You pay them whether your power comes from a wind farm or a gas turbine.
How do wholesale gas prices influence SA's electricity bills?
This is the mechanism people miss. The National Electricity Market pays every generator the price bid by the most expensive generator needed to meet demand in that interval.
Gas plants are usually the ones filling the gap when demand peaks or renewable output drops. So when gas is expensive, the price gas sets becomes the price everyone receives, including the wind farms that bid in at almost nothing.
That is why a day with plenty of renewable generation can still produce an expensive half-hour. The gas plant that ran for that half-hour set the price for all of it.
How does South Australia's high renewable energy penetration affect wholesale electricity costs?
It lowers them, through the merit order effect.
Wind and solar have effectively no fuel cost, so they bid in at very low prices, sometimes at zero or below. The market dispatches cheapest first, so every megawatt of renewable generation displaces a more expensive gas one further up the order.
Push enough cheap generation in and the price the market clears at falls. The more renewables running, the more often and the more deeply that happens.
Does renewable energy intermittency contribute to price volatility?
Short-term, yes. Supply moves with weather and that shows up in half-hourly prices.
But volatility is not the same as expense. Averaged over time, zero-marginal-cost generation lowers prices. What manages the volatility is firming: utility-scale batteries, pumped hydro, and interconnection to other states.
South Australia's experience is essentially the national test case for this. High renewable penetration works when the firming and transmission investment keeps pace with it.
Why are network infrastructure charges a significant factor in high SA electricity bills?
Because South Australia has a small population spread over a large area, and someone has to pay for the wire that reaches them.
Network charges routinely account for up to 50% of a residential quarterly bill, often hundreds of dollars. They cover transmission and distribution lines, substations and equipment run by SA Power Networks, and they are largely fixed regardless of how much you use.
The Australian Energy Regulator sets what network businesses may recover, so these are regulated costs rather than a competitive market. Fewer customers per kilometre of line means a higher cost per customer, which is simply a fact of South Australian geography.
What are the ongoing costs of maintaining SA's electricity grid?
Maintaining lines, poles and transformers. Replacing ageing assets. Managing bushfire risk, which in South Australia is a substantial and growing line item. Hardening the network against extreme weather.
On top of that, the grid is being adapted for rooftop solar flowing back up the network and for electric vehicles drawing down it, neither of which the original infrastructure was built for.
Key Takeaways
- Gas sets the wholesale price more often than its generation share implies, because the market pays everyone the most expensive bid needed.
- Renewables lower wholesale prices through the merit order effect by displacing gas.
- Network charges are up to 50% of a residential bill and are fixed, regulated, and driven by South Australia's dispersed population.
- Intermittency causes short-term volatility, which firming and interconnection are what solve.
- Cheaper power in SA depends on the gas market and network investment, not on removing renewables.
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