What does it take to keep the lights on?
As you might expect there’s a lot that needs to happen in order to get electricity to your home.
Being able to power up our appliances or keep our homes cool on demand is something we tend to take for granted. Behind the scenes there is a lot going on to make this a reality.
Here we explore the markets in which electricity is generated, transported, stored and consumed.
How we generate electricity
To generate electricity in Australia we still rely heavily on fossil fuels, with coal and gas making up nearly 80% of the mix. The balance comes from renewables like hydro, wind and solar.
Did you know -Australia depends more on coal for electricity than any other developed nation1. It’s one of the main reasons why the electricity sector is responsible for over 32% of Australia’s emissions.
In 2020 renewable energy from sources like wind, solar, and hydro provide just over 20% of Australia’s electricity grid supply. This includes both large generators and small systems owned by Australian families and businesses.
Dramatic improvements in the efficiency and cost of renewable energy over the last decade means that renewables are now the cheapest formats for new-electricity generation.
In fact, the cost advantage of renewables has the potential to create exciting export opportunities for Australia due to our strong solar and wind resources.
As an example, the Sun Cable project seeks to harness solar resource in the Northern Territory and transport it to Singapore via undersea cable. Sounds crazy? Not when you consider that Australia’s ratio of land-mass-to-energy-consumption is 2,000 times higher than it is in Singapore. In some ways, Sun Cable’s innovation is all about virtual “land exportation”.
Here’s Mike Cannon-Brookes, founder of Atlassian and Sun Cable investor, "Sun Cable is a world-scale engineering project. If we get this done on a global level, it will be innovative for many years to come. It's a huge potential export market for Australia.”
And David Griffin, CEO of Sun Cable, "Sun Cable is developing the Australia-ASEAN Power Link as a first of a kind. The first of many intercontinental electricity transmission projects that will enable the use of abundant renewable energy resources, on a scale never previously considered."
Did you know - more than 20% of homes in Australia have installed rooftop solar panels to generate electricity - the highest uptake in the world!
You can see the mix of fuels being used to create your state’s electricity - and the wholesale price at which they’re being sold at the Open Energy National Energy Market’s website.
- Energy Supply - Where does energy come from? - Department of Industry, Science, Energy and Resources
- 1 Energy mix by Hannah Ritchie
- Australia’s National Greenhouse Gas Inventory: March 2020
How we transport electricity
So how does the electricity get from the generator to your refrigerator? Massive transmission lines carry the electricity produced by generators over long distances to the population centres where it is needed. Once it arrives, electricity is converted to lower voltages for distribution via the smaller poles and wires that you can see on a typical suburban street.
The charges associated with transmission and distribution is set through a regulated process, and shows up on your bill as a result of being “passed on” by your retail provider.
Did you know - the electricity retailer doesn’t really “keep the lights on” in the sense of restoring power when there is a blackout. Nor are they responsible for the “quality” of power coming into our homes!
How we trade and retail electricity
Because electricity is “instantaneously perishable”, the commodity market in which it’s traded is the most volatile commodity on the planet.
What do we mean by this? Consider the electricity bill for your home. The average cost of wholesale energy purchased in order to supply your home approximates to about 8 cents per kilowatt-hour (kWh). In Australia, the typical household uses 4,000-5,000kWh of electricity per annum.
Against this “average” price of 8 cents per kWh, the wholesale price of energy can spike to as high as $15 per kWh, or approximately 200 times the average price! With prices this high, it is possible (though not probable) that on a day of extreme demand, the wholesale price the energy you use could cost your retailer as much as the other 364 days combined!!
At the other end of the spectrum, the wholesale price can plummet to negative $1/kWh!
The good news is that most of us are shielded from these wild swings by the retailer who serves our home. Part of the retailer’s job is to absorb this volatility on our behalf, and manage the risk, so that our energy bill is a bit more predictable.