Electricity prices keep rising, and you’re probably feeling the pressure. Maybe your current energy contract is ending, and the renewal quote shocked you. Or maybe you’re trying to plan ahead, and you want to know what will hit your bottom line next.
Have you heard about solar energy and wholesale electricity prices? Why do the energy prices fluctuate? How do you protect your business from price hikes?
At PSC Energy, we understand why prices fluctuate and what drives their changes. We also offer a transparent perspective on what you can do to protect your business. Most of all, we show you how energy independence with solar can transform your financial decisions.
In this article, you’ll learn about the following:
- How the National Electricity Market (NEM) Works
- Supply and Demand and the NEM
- How Retailers Respond to Price Volatility and the NEM
- The Amber Model and Access to Wholesale Prices
- Why Solar and Batteries Change the Game with NEM
- FAQ Commercial Energy Prices
By the end of this article, you’ll know how the National Electricity Market works, what causes price spikes, how contracts are priced, and why some retailers work differently.
If energy feels confusing, that’s because it is. But this guide will make it simple. You’ll walk away knowing exactly how the system works and what you can do to stay ahead.
How the National Electricity Market (NEM) Works
The National Electricity Market (NEM) connects the eastern states of Australia, including New South Wales, Queensland, Victoria, South Australia, and Tasmania. These states are linked by interconnectors, which allow electricity to move between them.
The NEM is one extensive system where supply and demand set the price of electricity.
Inside the NEM, different companies handle different parts of the system.
- Distribution Network Service Providers (DNSPs) own the poles and wires that carry electricity to your site.
- These networks vary by geography.
Electricity generators produce the power that flows through the network.
- Generators include coal-fired power stations, gas plants, wind farms, solar farms, hydroelectric stations, and large-scale battery storage systems.
- Each generator pushes electricity into the grid. That creates the supply side of the market.
On the other side are the consumers. These include households and businesses like yours. You create the demand.
Retailers sit in the middle. They buy electricity from the market and sell it to customers like you through contracts. They may also own generators, but not always.
Their role is to manage risk and simplify energy purchasing for you.
Electricity prices in the NEM change constantly. Prices are based on real-time supply and demand, and they can shift every five minutes.
If more supply is available than demand, prices drop. If demand is high and supply is tight, prices rise. That’s the foundation of how this market works.
If you’re interested in learning a bit more about commercial solar, you might want to check out the following article titled, Commercial Solar Energy in Sydney: Why Should I Consider It?
Supply and Demand and the NEM
Electricity prices in New South Wales and across the NEM move with supply and demand.
- Prices go up when demand is high and supply is low.
- They go down when demand is low and supply is high.
High Demand: Hot summer days are a typical example of high demand. Around midday in December or January, most people are home with their air conditioners on.
Supply Drops: If a major coal power station goes offline at the same time, for example, due to a breakdown or scheduled maintenance, supply drops. This mismatch causes a spike in wholesale electricity prices.
The problem is exacerbated by the fact that many coal-fired power stations in Australia are ageing. These plants are over 30 or 40 years old. They are more likely to fail unexpectedly or need regular maintenance.
Coal still makes up around 60% of the electricity generation mix, so when a few plants go offline, it creates a significant gap in supply.
Low Demand: On the other hand, when weather conditions are mild and demand is low, prices drop. This happens, for example, during the night or in the cooler months.
Every time there is a mismatch between supply and demand, it causes volatility. The market reacts quickly, and prices can jump or fall within minutes. This constant change is what makes pricing energy so difficult for businesses and retailers alike.
If you’re interested in learning a bit more about whether your business is a good fit for solar, you might want to check out the following article titled, Is Your Business a Good Fit for a Commercial Solar Energy System?
How Retailers Respond to Price Volatility and the NEM
Retailers play a key role in shielding you from the sharp movements in the wholesale energy market.
- They buy electricity from generators at prices that change every five minutes.
- Then they offer you a contract with a fixed price for one, two, or three years. That way, you don’t have to deal with the daily ups and downs.
To do this, retailers need to predict what the average wholesale price will be during the contract.
- They look at current trends in supply and demand, recent volatility, and upcoming risks.
- They then set a price that gives them enough room to handle any surprises in the market.
- On top of that, they add a margin to cover their costs and make a profit.
If the market has been stable, retailers don’t need to build in much risk. But if the market has seen sharp swings or if coal power stations are going offline, retailers will add more risk to your contract. That means a higher price for you.
This is especially true for longer contracts.
- If you sign a one-year deal, the retailer can make a reasonably accurate guess about prices.
- But if you ask for a three-year contract, they face more uncertainty.
That uncertainty shows up in your rate. You might expect a discount for committing longer, but that’s not always the case. In fact, longer contracts can sometimes cost more because the retailer must protect itself against unknown price spikes.
Retailers have also been hit hard over the last few years. Volatility has made it difficult for them to earn what they planned. As a result, many are now pricing new contracts higher to recover lost revenue. That’s why you may be seeing a significant jump in your renewal quote.
The choices you make today about your contract length and provider will affect what you pay next year and beyond. It’s not just about locking in a reasonable rate now. It’s about understanding what drives those rates in the first place.
If you’re interested in learning a bit more about commercial solar installation, you might want to check out the following article titled, Commercial Solar Panel Feasibility Study: How Businesses Can Assess Energy Benefits.
The Amber Model and Access to Wholesale Prices
Most retailers offer fixed-price contracts. These protect you from daily price swings, but they include margins and risk buffers.
Amber Energy uses a different model. Instead of setting a fixed price, they give you direct access to the wholesale market. You pay the real-time electricity price, and you pay a monthly subscription fee to Amber.
This model comes with risks and rewards.
- If wholesale prices are low, you save money.
- If prices spike, your bill goes up.
- On some days, the wholesale price can drop below zero. That means you get paid to use electricity.
- On other days, it can climb as high as $19 per kilowatt-hour, which is the current cap in the market.
For most businesses, that kind of price movement feels risky. Without a plan in place, one hot day or a supply issue could lead to a costly bill. But if your business has solar panels and a battery system, you can reduce that risk.
- Solar reduces how much energy you need to buy from the grid.
- A battery helps you store cheap electricity and use it during peak times.
Together, these tools give you more control.
You can use stored power when prices are high and even sell power back to the grid when prices spike. With the right setup, you can turn volatility into a source of revenue.
Please note: If your business doesn’t have solar or battery storage, the Amber model may not be a good fit. You would be fully exposed to every change in market price.
But if you do have these systems, or plan to install them, Amber can give you the ability to engage with the market directly.
This option is not for everyone. It requires awareness, control, and infrastructure. But it reflects a shift in how energy works in Australia. More customers are no longer just passive buyers. With the right setup, they can become active participants.
If you’re interested in learning a bit more about PPAs, you might want to check out the following article titled, Power Purchase Agreements (PPAs) for Commercial Solar: A Practical Explanation for Businesses.
Why Solar and Batteries Change the Game with NEM
Solar panels and batteries are no longer just tools to reduce your electricity bill.
In New South Wales, they now help protect your business from market volatility and even allow you to earn revenue. As energy prices rise and the market becomes harder to predict, these systems offer both savings and stability.
If you install a solar system at your site, it will generate a large portion of the electricity your business uses each day. Many commercial systems cover 60% to 80% of your total needs.
That means you only need to buy 20% to 40% of your energy from the grid. If wholesale prices go up, only part of your bill is affected.
Can a solar battery cover my energy needs?
The answer is yes!
When you install a battery with solar panels, you increase your protection. The battery stores excess solar energy during the day, then discharges when prices are high or when the sun goes down.
With the right battery setup, your system can cover 100% of your energy needs. You avoid paying high grid prices during peak periods, and you don’t feel the spikes in the wholesale market.
Can I participate in the NEM?
Yes, a well-sized battery can turn your site into a market participant.
You can export energy to the grid during price spikes and receive the full wholesale price for it. Some customers with battery systems are earning credits of $100 to $500 per day by doing this.
They are saving on power and profiting from their system.
This level of protection and participation is not possible with a fixed-price contract alone. Retailers use averages and risk margins to manage their side of the deal.
But when you invest in solar and batteries, you:
- Manage the risk directly.
- You gain control over when and how you use energy.
- And that control protects your business from rising costs.
These systems do require upfront investment. But they also provide long-term value by reducing your exposure to future price increases and helping you take advantage of market opportunities.
If you’re interested in learning a bit more about commercial solar payment options, you might want to check out the following article titled, How Should a Business Pay for a Commercial Solar Panel Energy System? Your Guide to CapEx, Leasing, and PPAs.
Wrapping Things Up: Take Back Control
The energy system is changing. It used to be fully controlled by retailers, who sold 100% of the energy in the market. Now, that number has dropped to around 70%. More businesses are generating their own power. More are protecting themselves with battery systems. And more are stepping into the market instead of sitting on the sidelines.
To protect your business from future price increases, you need to understand how energy prices work. You also need to act.
- That may mean reviewing your next contract more closely.
- It may mean installing solar and a battery.
- It may mean switching retailers or exploring wholesale models.
At PSC Energy, we understand how difficult some of this is to digest. We’re here to help you wrestle back control of your energy. Don’t wait for your energy prices to go up again. Make a plan now and take back control. We’ll help you when you’re ready.
If you’re interested in learning a bit more about commercial solar requirements, you might want to check out the following article titled, Why Emissions Reporting Will Make or Break Your Business and How Solar Panels Help.
FAQ Commercial Energy Prices
What causes electricity prices to go up in New South Wales?
Electricity prices go up when demand is high and supply is low. This often happens on hot summer days when many people use air conditioning. Prices also rise when coal power stations fail or shut down for maintenance.
What is the National Electricity Market in Australia?
The National Electricity Market, or NEM, connects power systems across New South Wales, Queensland, Victoria, South Australia, and Tasmania. It lets electricity flow between states. Prices in the NEM change based on supply and demand.
How does supply and demand affect energy prices?
If there is more electricity supply than demand, prices go down. If there is more demand than supply, prices go up. These changes can happen quickly and often lead to price spikes.
Why are coal power stations a risk to energy prices?
Many coal power stations in Australia are old. They often break down or shut down for repairs. Coal still provides about 60% of electricity, so problems with coal stations cause big drops in supply and lead to higher prices.
How do electricity retailers protect customers from price spikes?
Retailers buy electricity from the wholesale market. Then they sell it to customers through fixed-price contracts. These contracts give customers a set price for one, two, or three years. The fixed price protects customers from short-term price spikes.
Why are electricity contracts getting more expensive?
Retailers raise contract prices when they face high costs in the wholesale market. If prices have been volatile, retailers will charge more to cover future risk. This is why many businesses see higher quotes when they renew their contracts.
Do longer energy contracts save money?
Not always. Longer contracts come with more risk for retailers. Because of that, retailers may add higher margins to three-year deals. A short contract may offer better rates if market prices are stable.
What is the Amber electricity model?
Amber is a retailer that gives customers access to real-time wholesale energy prices. Instead of a fixed rate, customers pay the current market price for electricity. Amber charges a monthly subscription fee for this service.
Is wholesale energy pricing a good choice for businesses?
Wholesale pricing can work well for businesses with solar and batteries. These systems help lower grid usage during price spikes. Without solar or storage, wholesale pricing can be risky because prices change often and can go very high.
Can solar power lower business energy costs?
Yes. A solar system can produce most of the electricity your business needs during the day. This means you buy less electricity from the grid, which helps lower your bills.
How do batteries help with energy prices?
Batteries store electricity from your solar system. You can use this stored energy when prices are high. With the right setup, you can avoid buying expensive grid power during peak times.
Can I sell electricity back to the grid?
Yes. If your system includes a battery and extra solar generation, you can sell electricity back to the grid. You get paid the current wholesale price for that energy. Some businesses earn credits this way during price spikes.
Why are businesses installing solar and batteries?
Businesses install solar and batteries to reduce energy bills, protect against rising prices, and gain more control. These systems also help during times of high market volatility.
What happens when coal power stations retire?
When a coal station shuts down, the supply of electricity drops. This causes prices to rise until new generations, such as solar or battery systems, replace the lost power.
