Gas generates expensive electricity

Renewables contain electricity prices.

Electricity prices would be much higher without renewables, because renewables provide low-cost electricity. They can even profit when selling electricity to the grid at negative prices. This means that when renewable generators compete to supply the grid during periods of oversupply, the wholesale price of electricity drops below zero.

The Coalition claims they will reduce gas costs, but even if they drop the price dramatically, gas generation will still not be able to compete with renewables.

When the Russians invaded Ukraine, coal and gas prices soared, causing electricity prices to increase around the globe. Expanding renewables is a way of insulating Australia from international fossil fuel price hikes and limiting electricity price increases.

With renewables, you get negative wholesale electricity prices, that’s cheap. Without renewables, electricity prices would be much more expensive. The best way to get cheaper retail electricity prices is to keep on rolling out more renewables.

Negative wholesale electricity prices

The Australian Energy Market Operator (AEMO) holds an auction between electricity generators every five minutes; all generators bid, and the cheapest bids supply the grid. These auctions set the 5-minute wholesale price of electricity.

Renewables compete to supply the grid when there is a potential oversupply. They often bid low, sometimes so low that they go negative.

Think of it like this: imagine walking into a fruit shop where the price of apples is below zero. You would get free apples, and the shop would pay you to take them. That’s how negative electricity prices work. When prices are negative, the generators pay the grid to accept their electricity.

How renewables can profit with negative prices

Renewables can make money when they sell their electricity to the grid at negative prices. This is because, when their electricity is dispatched into the grid, in addition to the money from the sale, they earn a “Large Scale Renewable Energy Generation Certificate” for each megawatt-hour of generation, and the electricity retailers buy these certificates to meet Renewable Energy Target obligations.

The values of these certificates fluctuate from $10 to $60 per megawatt-hour ($/MWh), so consider one example where a solar farm:

Sells electricity to the grid for Minus 20 $/MWh
Sells the Certificate to a retailer for 30 $/MWh
Increases profit by 10 $/MWh.

This explains how renewable generators can compete, drive the wholesale price of electricity below zero, and still profit.

These certificates encourage renewable generation and are an established part of our energy system. For a short while, we had a carbon tax that played a similar role, advantaging renewable over fossil fuel generation to inhibit global heating.

Where coal generators need to keep generating, this competition can go further. Baseload coal generators bid against one another and renewables, driving the prices to even larger negative values, e.g., minus 150 $/MWh. Coal plants bid like this as they are prepared to run at a loss to avoid the greater costs of shutting down and restarting.

Renewables have zero marginal cost.

In the above example, the solar farm increases its profit by the full 10 $/ MWh because the cost of that electricity to the generator is zero.

Their marginal cost of generation is zero because the cost to run a solar farm doesn’t change when it generates 99 kilowatt-hours (kWh) in a day or 100 kWh on a sunnier day, meaning that the last 1 kWh of electricity costs nothing to produce. The same applies to wind farms. In contrast, gas-fired plants need to burn more fuel for each extra kWh, giving them a positive marginal cost that depends on the gas price.

Fossil fuel generation can’t compete.

With zero marginal cost and the extra income from the Certificates, renewables can even bid negative prices and make a profit. This is why coal and gas plants cannot compete on price with renewables and why expanding renewables is the best way to reduce retail electricity prices.

Evidence of the negative prices

The following graph is from the AEMO National Electricity Market website.

The time runs from (1) Tuesday, 1 April 2025, about 1 pm, until (2) Thursday, 3 April 2025, about 1 pm. It covers the 48-hour period immediately before I copied the graph on 3 April.

The purple line on the graph shows the wholesale 5-minute electricity prices in South Australia (SA) dropping below zero. On the left, the price axis ranges from “minus100” to “plus 600” dollars per megawatt-hour ($/MWh). The purple cost line falls below zero $/MWh three times in this period, each time about noon on 1 April, 2 April and 3 April. Each noon, there was the potential for generation to exceed demand, the renewable generators bid against one another and dropped the wholesale price below zero.

The green line shows the SA state “operational demand” in megawatts (MW) with four peaks: the 1 April evening peak, the 2 April morning peak, the 2 April evening peak, and the 3 April morning peak. Operational demand includes the demand met by the large-scale generators and imports from other states. It excludes the demand met by rooftop solar panels behind the household meters and by rooftop solar panel exports to the grid.

Graph of South Australian 5-minute wholesale electricity prices

. The time axis shows: 1 April 18 hours, 2 April 0, 6, 12 and 18 hours, and 3 April 0, 6 and 12 hours.

Graph events	Time	Example price $/MWh	Price setter
** Low cost around noon (Purple leftmost low 1)	1 Apr 1 pm	** Minus 1	** Renewables
Peak evening demand (Green leftmost peak 1)	1 Apr 6 pm	180	Gas
Night price plateau (purple)	1 Apr 8 pm to – 2 Apr 5 am	100	Gas
Peak morning demand (Green peak 2)	2 Apr 7 am	300	Gas
** Low cost around noon (Purple low 2)	2 Apr 11 am – 1 pm	** Minus 18	** Renewables
Peak evening demand (Green peak 3)	2 Apr 6 pm	240	Gas
Night price plateau (purple)	2 Apr 8 pm – 3 Apr 5 am	110, 140	Gas
Peak morning demand (Green peak 4)	3 Apr 6 am	253	Gas
** Low cost around noon (Purple low 3)	3 Apr 11 am – 1 pm	** Minus 28	** Renewables

This is the same graph repeated.

The two nights shown have higher costs, but wind generators and imports often compete to supply the grid on other nights, lowering overnight costs too. This happened in the early hours of 1 April, see below.

The sources of SA electricity

This graph shows the sources of SA electricity over a slightly longer period than the previous graph. The graph is from the Open Electricity site and based on AEMO data.

South Australian electricity generation1 to 5 April 2025

.. ! 1 April ……………………………………! 2 April …………………………………. ! 3 April ……………………………………! 4 April

Time from 31 March 2025 at 10 pm until 4 April at 10 pm.
Greyed times are night between 10 pm and 7 am
Light yellow: Rooftop solar
Dark yellow: Large-scale solar
Green: Wind
Blue: Battery discharging
Several shades of orange: Several types of gas generation
Purple: Imports from Victoria
The top of the solid colour shows the demand SA state demand in megawatts (MW). This is the “operational demand,” and on top of the operational demand, the “light yellow” rooftop solar panel exports to the grid.
When the solid colour drops below zero, we have export or battery charging, as there is more generation than demand.

Notice that:

There is always a minimum gas generation.
Gas generators can supply a large part of the demand, e.g., on 2 April at 7 am. However, most of the time there is little gas generation because they cannot bid lower than the wind generators, solar generators and Victorian imports.
Rooftop solar exports to the grid (light yellow) supply about 80% of the state’s electricity around noon on 1 and 2 April.
Rooftop solar (light yellow) and large-scale solar (dark yellow) combined meet all the SA demand and supply exports at times around noon on 1 and 2 April.
Solar (yellow) and wind (green) meet the entire demand during periods around noon each day.
Wind alone meets about 90% of the demand overnight, between about 31 March at 11 pm and 1 April at 7 am.

Negative prices also occur in other states.

The potential electricity supply also frequently exceeds state demand in Victoria, NSW, and Queensland, which are the coal states. Again, when this happens, competition between renewables takes the prices below zero, and the coal plants ramp down to minimum generation levels. Then the coal generators can also bid against one another because they do not want to face the costs of stopping and starting generation. They can bid the price to even greater negative values, e.g. minus 130 $/MWh – but the coal plants make a loss when they do this.

Conclusion

Renewable generators offer market competition and drive down wholesale electricity prices.
Renewables lead to regular low prices around noon and at many other times.
Without renewables, wholesale prices would remain elevated all day,
In South Australia, negative prices occurred for 34% of the December 2023 quarter.
Low wholesale prices tend to drop retail prices.
Renewables produce cheap electricity.
Gas produces expensive electricity.

How to view these AEMO price graphs.

You can check out these claims by reproducing today’s electricity price graphs, which will normally be similar to the above graph:

Open the AEMO National Electricity Market web dashboard.
Click on the “price and demand” tab.
Click on the state of South Australia (SA).
Click on “pre-dispatch” and choose “dispatch” on the right of the line where you chose South Australia.
Hover your mouse over the graph to see the price and time.
Look at the graph on a Wednesday, Thursday or Friday to see the weekday fluctuations.

How to view these Open Electricity graphs.

You can see today’s “electricity sources” and “wholesale prices” on the Open Electricity website.

Click on “tracker”.
Click on “National Electricity Market NEM” and view “SA” or any other state.

You can hover your mouse over the sources and demands of electricity (on the right of the graph), and the graph highlights where this source or demand occurs, e.g., hover over “battery charging” or “wind”.

The “wholesale price” movement is also graphed. It’s the fourth graph on this page.

You can see the minimum and maximum wholesale price over the period of the graph, again this is to the right of the graph.

The Open Electricity website is a fantastic resource.

Related pages on this site

Alternative facts about current Australian electricity costs.

The Coalition’s nuclear folly.

First written 6 April 2025, updated 29 April 2025