Wholesale energy prices and providers in Australia

Fact Checked

Energy prices can be an overwhelming topic, resulting in some households paying more for electricity. Many electricity customers are unaware that it is possible to purchase energy at wholesale energy prices, therefore missing out on cheaper rates.

In this article, Canstar Blue will explain what wholesale energy prices are and which energy providers offer them.

What are wholesale energy prices?

An energy provider will buy electricity – known as wholesale market costs – from the National Electricity Market (NEM) and then on-sell the wholesale rates to customers at a marked up price. This is to cover the cost of generating and transporting energy to households via poles and wires, as well as factoring in any government schemes and residual expenses from the retailer. Finally, the energy provider will incorporate its profit into the final cost.

It’s important to note that electricity purchased at a wholesale rate is called a spot market, meaning prices are traded regularly between power generators and energy retailers. Spot prices are updated every 30 minutes and fluctuate in value depending on the time of day.

Here is an example from the Australian Energy Market Commission (AEMC) of how much wholesale electricity prices can vary during peak demand periods (i.e. when we all get home and turn on the air con).

The graph above highlights a spike in electricity demand from around 4pm to 7pm on a weekday, a three-hour period when the grid is usually at its peak capacity. As electricity demand increases and decreases throughout the day, so do spot prices.

How do wholesale energy plans work?

While a handful of energy retailers claim to give customers access to wholesale energy prices, there are generally other costs attached, such as membership fees. This means that although wholesale energy rates are technically on offer, consumers will still be paying more for the spot price as listed by the Australian Energy Market Operator (AEMO).

In reality, customers are given ‘access’ to wholesale energy rates at the expense of a membership fee, which can be paid via ongoing instalments or a lumped annual sum. Although wholesale energy rates are available, it will generally come at a cost somewhere else, so always be sure to read the fine print.

Some wholesale energy providers claim to have fairly ingenious ways to help consumers pocket wholesale prices when they’re at their cheapest. This includes alerts through smartphone apps which display live rates and pricing forecasts.

Aside from power retailers themselves, only large-scale industrial businesses can buy wholesale energy prices directly from energy generators as their demand for electricity is much higher than residential or small business customers. If customers are going to benefit from wholesale energy prices when they are cheap, it is likely to also affect their energy bill when the wholesale cost goes up.

Who sells wholesale electricity prices?

There are more than 30 residential energy retailers in Australia, but only two provide wholesale energy prices – Energy Locals and Amber Electric.

Energy Locals

Energy Locals is a smaller electricity retailer taking on the competition in New South Wales, Victoria, South East Queensland, South Australia, Tasmania and the ACT. It currently has two plans – Online Member and Local Member – both of which provide wholesale prices for electricity usage. Energy Locals has a third plan in Victoria called Daytime Saver.

Monthly membership fees apply and each deal may not be available in all areas. Energy Locals promises ‘no price gouging’ when rates change, as well as access to an online portal that shows half-hour electricity usage.

Amber Electric

Another provider in its infancy is Amber Electric, promising customers a more ‘honest’ way of buying power. In exchange for providing wholesale energy prices, this energy provider charges a small monthly fee. Amber Electric also has an app which is claimed to give consumers live prices and 12-hour forecasts.

Treat wholesale energy price estimates with caution

Purchasing cheaper wholesale energy rates successfully means accurately predicting annual power costs. This can be a difficult and confusing process.
Australian energy regulations mean that energy retailers and comparison websites (including Canstar Blue and various government sites) must give consumers a price estimate and reflect how this cost compares to the market. This is why estimated costs for wholesale energy plans should be treated with some caution.

In the case of Amber Electric, it takes a cautious approach in only guaranteeing customers an annual cost equal to the Reference Price, when in reality households could stand to save much more in the right circumstances. It all comes down to how well customers engage in the process – and of course, what wholesale prices do.

Are wholesale energy prices cheaper?

Wholesale electricity prices are technically the cheapest on the energy market, but that doesn’t mean these rates remain the cheapest when sold to customers. As mentioned earlier, buying wholesale doesn’t necessarily mean the lowest price, because energy companies usually attach other fees to cover the cost of giving customers access to wholesale prices.

Given the fluctuating nature of the wholesale energy market, those cheap rates can suddenly skyrocket at a moment’s notice should power supply struggle to meet demand in the market. The retailers that sell wholesale energy prices claim to have measures in place to try to mitigate the risk of high spot prices being passed on to customers, but it’s worth keeping in mind the volatile nature of the system.

For a wholesale energy plan to work well in the customer’s favour, they will need to make sure to monitor energy prices closely. It is also vital that the customer follows their energy retailer’s guidance on when power is affordable and when it’s time to cut back due to high spot prices. Given that the wholesale energy retailer will be making money from membership fees rather than through energy usage (as with most normal energy plans), the energy retailer has nothing to gain from seeing customers hit with higher usage rates.

How much does 1kWh cost?

The price charged for electricity per kilowatt hour (kWh) will depend on the state, as well as the electricity distributor which is responsible for delivering energy to homes and businesses via the national grid. Unlike energy distributors, an energy retailer is in charge of setting the kWh price that customers pay for electricity, with the average usage rate per kWh typically costing between 19c and 30c.

Usage and supply charges of energy plans can be found by using Canstar Blue’s free comparison tool. Simply type in your postcode, select a plan of interest and click on the ‘more details’ button to the right of the page.

Are wholesale energy prices worth it?

Signing up to an energy retailer offering wholesale energy prices is certainly not a gimmick, with lower rates often paving the way to cheaper energy bills. Remember that customers will not pay the same wholesale energy rates as retailers, given that customers will likely be paying additional costs elsewhere. But if you can justify membership fees in exchange for wholesale energy prices, then these plans could prove to be a serious money saver. Just make sure you research sufficiently and understand what you are signing up for. Wholesale energy plans are suitable for consumers who can closely monitor their energy usage in search of cheaper rates. Choosing a wholesale energy plan certainly means energy costs are less predictable, but taking the risk could pay off.

Image credits: ARDV73/Shutterstock.com, Australian Energy Market Commission (AEMC)