We all receive electricity bills for our homes, whether it’s once a month, or maybe once a quarter, but how many of us stop to think about where our energy is actually coming from? 

If the energy market feels like a mystery to you, you’re not alone – and it’s no surprise either. The energy industry is notorious for being complicated. It’s full of jargon and the big fossil-fuel players have kept customers in the dark from the inner workings of the market.  

But times are changing, and more energy-savvy Aussies are keen to learn how the market works – and how it influences what they pay for electricity. 

That’s why we’ve asked Flow Power’s energy experts to break down everything you need to know. A little extra knowledge can go a long way, helping you make smarter, greener energy choices, and even save money on your monthly bill. 

What is the wholesale electricity market? 

The wholesale electricity market, known in Australia as the National Electricity Market (NEM), is where all electricity is bought and sold in bulk before it reaches homes and businesses.  

The energy market connects and powers Queensland, New South Wales, Victoria, South Australia and Tasmania. Each state is considered its own region (except for ACT, which is counted as part of New South Wales) and each region will have its own electricity price (discussed in more detail shortly). 

In the National Electricity Market, electricity generators, such as wind turbines, solar farms, gas plants or coal power stations, produce electricity and sell it to utilities and retail energy providers. These companies then deliver the power to consumers, like you. 

However, unlike other commodities like iron ore, coal or grain etc, electricity has been very difficult to store cheaply (although this is changing very quickly with batteries). This means electricity needs to be generated and consumed (or stored in batteries) in equal amounts in real-time). That’s why balancing supply and demand in the market is critical to keeping our shared electricity grid stable. 

Sometimes, the energy market is used interchangeably with “the grid.” Typically, the grid refers to the network of power lines, substations, and infrastructure that delivers electricity from generation sources (like wind farms, solar plants, or traditional power stations) to homes. It’s how energy travels from where it’s produced to where it’s used. 

How does wholesale electricity pricing work? 

Each region has its own electricity price, which is set every 5 minutes of every day throughout the year.  

To set the price, energy generators submit an offer to sell the electricity they produce to AEMO. AEMO estimates how much electricity will be needed for the next five-minute interval and selects the cheapest combination of offers from generators necessary to make sure enough is being produced to satisfy expected demand.  

Renewable generators that don’t require fuel, like solar farms or wind turbines, are at an advantage here, because they are typically able to produce their generation at  a much lower costs than costly coal or gas fuelled generators. As such, they generally offer it into the market at lower prices. When there is lots of wind and solar generation available, these offers can drive down the wholesale cost of electricity, as the fossil fuelled generators are undercut by the cheaper renewable generation.  

During daytime hours when solar energy is at its peak, the wholesale price will usually be low – or even negative. In comparison, wholesale prices are typically at their highest around 6pm, when the sun has set, demand tends to be higher and a greater proportion of the energy in the grid comes from expensive fossil fuels, like coal. Overnight, when electricity demand is lower and there is generally more wind generation, wholesale electricity prices will typically also fall.  

How wholesale electricity prices affect your bills 

If you’re on a standard electricity plan, wholesale price fluctuations won’t have much influence on your electricity bills. You’ll be charged a set rate by your electricity provider, regardless of whether the real-time price they pay from the wholesale market is high or low.  

On a wholesale-based contract, the price you pay will be determined by the real-time cost of electricity on the market. This pricing can be structured in different ways, depending on your retailer: 

• Full wholesale market price exposure: In some cases, retailers will pass through the wholesale price at cost and charge you retail margin, or a subscription fee, for their service. 

• Partial wholesale market price exposure: Other retailers – like Flow Power – link you to wholesale electricity market pricing, but don’t leave you fully exposed to extreme price fluctuations . Instead, you receive an adjustment to your bill each month, based on your usage patterns compared to market prices, to incentivise smarter energy habits.