Australians pay more for our energy than the Japanese do, despite the fact that 30% of Japan’s energy is supplied by Australian coal and gas.
And I’m going to use these poker chips to show you exactly why that happens. But first, let’s think about that. That means that we can dig up the coal or extract the gas, put it onto a ship, sail it around Papua New Guinea, past Indonesia, and across oceans, deep into the northern hemisphere, unload it in Japan, and then they can use it. And somehow that costs them less than what we pay for our own electricity right here in Australia. Can this really be true? And if it is true, why is it so?
Well, it is happening because of a thing called the bid stack, which is how the Australian energy market operator decides how much our energy producers get paid for the energy they supply into the grid. And believe it or not, thanks to this bid stack, Australians always pay the maximum price for the energy being used at any given moment in time, not the minimum price for each bit of energy being used. I’ll explain what that means in a minute. Now, that’s why we pay more for our own energy that that we use right here at home than what the Japanese pay for using our energy after it’s been shipped to Japan. I will explain exactly how all of this works and how to fix it in just a moment.
But first, my name’s Topher Field. This is the Topher project and I help busy people like you to make sense of the nonsense that surrounds us and our power prices and how that system works. Well, that is most definitely nonsense. I am 100% viewer supported. So if you appreciate having an Aussie doing stories like this for Aussies, then please support my work by buying me a coffee via the button at topherfield.net. And if you like my videos, then you will love my books about government, power, human rights, and civil disobedience, a topic that is sadly essential for us all right now. You’ll find my books, as well as my DVDs, my t-shirts, and my hoodies at goodpeoplebreakbadlaws.com. And everything you buy will help me to keep this Topher project going.
I attended the CPAC conference recently and Senator Canavan gave a great speech in which he talked about his Japanese mate who was paying less for Australian energy than he was as an Australian in Australia. He reiterated the same thing in this excellent opinion piece for the Australian. And I did some searching and found out that sure enough it’s true. Japanese consumers are paying a little less than we are per kilowatt hour for electricity despite the fact that they’re burning Australian coal and gas. How can they be paying 32 cents per kilowatt hour retail price for Australian power when we’re paying, in the case of Senator Canavan’s bill, 33 cents per kilowatt hour?
Well, it’s because we don’t actually pay the cost of our cheapest electricity. We pay the cost of our most expensive electricity that we are using at any given moment in time. Now, this requires some explaining. This time, I’m not using marbles. I’m using poker chips to help me illustrate this thing called the bid stack, which is how our energy market operator decides which energy suppliers get paid how much for the electricity we use in our grid. It’s a known fact that brown coal can provide reliable base load power for as little as $60 per megawatt hour or 6 cents per kilowatt hour. Black coal costs a little bit more.
Now, that’s the wholesale price. So, obviously, the consumer price would have to be significantly higher to cover the cost of the transmission and all of the infrastructure that’s needed to get that power to our homes and businesses. So, I’m not suggesting that 6 cents per kilowatt hour should be our retail price. I’m just saying that that’s the cheapest base load power that we have. And I’m going to represent all coal with these black poker chips.
Then there’s gas. Now gas is considerably more expensive than coal but still very cheap as a base load and peaking power supply.
What do I mean by that? Well, over the course of every day, how much power we need in the grid fluctuates quite dramatically and the input of power to the grid needs to very closely match the consumption of power in the grid or else bad things start to happen very quickly.
So, something like coal is great. its base load power, meaning it is continuous day and night power. But because it involves large furnaces and huge steam turbines, you can’t change its power output quickly. It can ramp up and down over a period of tens of minutes or even hours. But not quickly, rapidly to match the movement of the demand. For that, you need a peaking power supply. And gas is much better at that because it can scale up and down relatively quickly. And in combination with a few other engineering tricks, a combination of coal and gas is very capable of providing reliable base load and peaking power, i.e. a complete, reliable, and affordable grid. Gas is going to be blue for our purposes.
Then we’ve added all of these so-called renewables, which I’m going to color green. Now, renewables behave completely differently to either coal or gas. They are neither base load nor peaking. They can’t be controlled at all. They just happen when they happen. And if that happens to be at a time when the power is needed, great. If it happens at a time when the power is not needed, then we actually have a really big problem, which I’ll get to in a moment.
The price of wind and solar varies massively, pretty much in line with how well the supply matches demand. Some people love to claim that these so-called renewables are the cheapest form of power, but that’s a highly debatable claim, which we’ll go down the rabbit hole of in just a minute.
But finally, we get to batteries, which I’ve got here in red. Now, batteries are supposed to be the solution to the unreliability of renewable energy. storing the electricity when it is in over supply such as on a sunny day with wind and then putting it power back into the grid when there’s not enough such as during a hot windless night when people are running their air conditioners. Thing is gridscale battery backup is the most expensive form of energy out of all because of the cost of the batteries and the related infrastructure but also because batteries don’t create power.
They just allow us to store power and then dispatch it at a time of our choosing instead of it happening whenever the sun shines or the wind blows.
Okay, so let’s say we have our four main categories of power. Now, yes, there’s also hydro and there are diesel generators in South Australia. I know I’m oversimplifying for obvious reasons. We’ve got our various forms of coal here in black, which is base load only and the cheapest in the real world. Gas in blue, which is base load and peaking and not as cheap as coal. Solar and wind in green, which is neither base load nor peaking and has to be used when it’s made. And there’s lots of misinformation about it being the cheapest, but that’s highly debatable. And then there are the batteries in red, which everyone agrees are the most expensive option of all and exist only to try and turn solar and wind into some form of dispatchable faux base load power.
Okay, so here in white is a stack of energy demand. This is the amount of power needed right now. And if we don’t supply it, then there is grid instability, blackouts, or in a worst-case scenario, the whole grid can go down and have to be restarted, which is not an easy thing to do for a host of technical reasons. So, which supply do we turn to first to meet that demand? That depends on who you ask. If it weren’t for the existence of vast amounts of unreliable and highly variable grid-scale wind and solar, then we would obviously turn to the cheapest option, which is coal, and we would work our way up the ladder to more expensive forms of energy until we’ve met demand.
But if wind and solar are generating, then we need to use that first because if we don’t use it in that moment, then it’s lost forever or it gets stored in the batteries and becomes our most expensive source of power. More on that in a minute. So, because we do have some renewable energy being generated right now, we have to use it. And let’s say it’s a cloudy day, there’s not a lot of wind. So, that’s how much renewable energy is being generated right this instant. Now, people mistake this as meaning that renewables are therefore the cheapest because we have to use them first. But actually, renewables are what’s called the cheapest marginal unit of energy.
Now, what does marginal mean? Well, it means that it has the lowest cost per additional unit of energy that is created. I.e., if the wind blows a little bit harder or the clouds disappear and the sun is a little bit stronger, then more power gets generated. And yet, that power is essentially free. The marginal cost was zero. It didn’t cost anything extra to get that extra little bit of power as compared to something like coal or gas where you have to pay the fuel for every kilowatt hour of energy you create.
So, the green carpet baggers love to claim that wind and solar are the cheapest, but that’s only true if you’re looking at the marginal unit of energy, and you ignore all of the upfront costs, the construction of the solar farms and the wind towers, and also ignore all the extra power lines and grid infrastructure needed to shuttle this unreliable and intermittent power around the grid to where it can be used the instant it is being created. If we ignore all of those real-world costs and just look at the marginal cost per unit of energy, then sure, solar and wind are all of a sudden magically the cheapest.
Okay, so we shove all of the available renewables in there first. It’s not particularly windy, not particularly sunny, so that’s all we’ve got. But we’ve already sunk the upfront cost. There’s no marginal cost for this power. So there’s no point not using whatever power they happen to be generating. But on this particular day, we still need a lot more energy. Now we go to the cheapest available option which is coal. Let’s assume that we still need more even after all of the coal is online. And so therefore we add some of our gas capacity to make up the difference. And thankfully gas is reasonably good at ramping up and down adjusting to meet the exact demand.
So now, we have precisely met demand. Now in a few minutes time that demand might go up but that’s okay because we have spare gas capacity. And like I said, gas is pretty good at peaking or ramping up and down to meet the exact demand moment by moment. So if the demand goes down, so does our gas supply. And this right here is actually a really good situation for consumers because the most expensive marginal unit of energy that we’re using is gas, which is pretty cheap. It’s more expensive than coal, and it is more expensive as a marginal unit of energy than what renewables are, but it’s still pretty cheap.
And here’s the thing you need to know about how our energy system works. The bid stack in Australia, all of the energy being supplied, all of the energy in this stack gets paid at the rate of the most expensive unit of power being used at that time. This is the bid stack system. So if the most expensive unit of power that we’re using is gas, then everything in the stack gets paid the gas price. The solar, the wind, the coal, and the gas all get paid for their electricity at the gas price because that has the highest marginal cost per unit of energy in the grid in that particular 5-minute block.
Now, they designed the system this way specifically to create a financial incentive for suppliers to want to jump in and meet demand and to create an incentive for them to ramp up demand as renewables go up and down and into oversupply. More on that in a minute. And I’m sure the bid stack system seemed like a good idea at the time, but you may have already begun to see the problem here. This creates some terrible inefficiencies and some really perverse incentives, as we’ll see in a minute.
Let’s say the sun sets and all of a sudden there’s no wind. All of the renewables are gone from the supply.
But let’s say it’s a freezing cold night and everyone’s running their heaters. Now you have a serious shortfall in supply. So now we have to buy not only all of the coal, but also all of the gas as well. But it’s still not quite enough because we haven’t been building enough new coal and gas power stations to keep up with rising demand and population growth. We’ve been building these renewables, but they’re not helping us right now.
So, enter the batteries. Remember these? They’re here to make the wind and solar energy dispatchable. And they do that, but they’re also stupendously expensive. And remember, every unit of energy gets paid the highest price in use at that time. So, when we need that battery backup to plug the shortfall because renewables are low, well, sure, we’re using the renewable energy, but the cost of battery-supplied power is about double the cost of coal according to the official figures. But the difference in reality is actually far bigger than that for reasons that I’ll go into in a second.
Coal is actually cheaper than it looks and batteries are actually more expensive than they look. And yes, I can back that up and demonstrate exactly why that is. But what matters right now is that as soon as we have to resort to battery backup for any amount of energy, every unit of energy in the entire stack is suddenly being paid the battery rate.
Now, in extreme situations where demand seriously outstrips supply, and we have to dip deep into the battery reserves and do all sorts of other things, the price of electricity can reach its cap in Australia of $15,000 per megawatt hour. Now, keep in mind that brown coal in Victoria runs at around $60 per megawatt hour. Yes, you heard that correctly. Brown coal can be supplying power into the grid at $60 per megawatt hour, but be being paid $15,000 for that same megawatt hour because the sun’s not shining, the wind’s not blowing. We’re having to take extreme measures to prop up the grid and everything in the stack gets paid the maximum price.
Now, that doesn’t happen often, but it does happen. This is the price of instability. The unreliability of renewables isn’t just an academic problem. It’s a real-world problem and it comes at a huge cost because we’re not building coal and gas to meet our peak demand anymore. But at the other extreme, when the wind is blowing and the sun is shining, something even crazier happens. Prices can actually go negative.
And no, contrary to how it may sound, that’s actually not a good thing. Let’s say that demand is a little low right now, but renewables are going hard because there’s a stiff breeze and full sun. Now, that looks like a happy situation with demand and supply perfectly matched, and we’re using 100% renewable energy, happy days. But this ignores the fact that because renewables are so unreliable, we need to keep our base load power generators running all the time. And they have to stay connected to the grid in the case of coal because these base load power generators don’t just provide power. These massive coal steam turbines are the generators that dictate the exact 50 Hz alternating current that the rest of the grid matches. So these huge coal generators, they are the grid. Everything else is just coming along for the ride. So no, we can’t just turn them off or disconnect them. We can ramp them down, but only by wasting and dumping a whole bunch of energy for no reason, which means wasted fuel and burning money.
This is why I said earlier that coal is actually cheaper than it appears because coal is forced to operate inefficiently to try and coexist with the highly unstable and variable renewables.
Now, in this scenario, gas is already out of the grid, but actually it has to keep idling as well. Even though it’s not connected to the grid, it’s burning fuel, staying ready for no energy creation so that it can cut in at a moment’s notice if the sun goes behind a cloud or the wind drops for any reason. So now our coal and our gas are wasting fuel, running inefficiently, increasing the cost of coal and gas because intermittent wind and solar are destroying their ability to just sit there and churn out reliable power day and night. But despite getting rid of gas and ramping down coal, we still have a serious oversupply of energy. And this, this is bad. If they don’t fix this almost instantly, the grid will go down.
So, what do they do? Well, what they do is they push prices negative, which means that all of a sudden the suppliers are paying money for supplying their energy into the grid because there’s too much of it. Now again, this doesn’t happen often, but it does happen. And the more renewables you have in the system, the more often this will happen. So now this coal power plant that just can’t ramp down any faster and can’t disconnect from the grid, this for as long as there’s an over supply of energy into the grid, this coal fired power plant is now paying for supplying electricity. And this is yet another cost that they have to recover later on, pushing up the listed price of coal even higher. This is yet another reason why I say that coal is actually cheaper than it appears. Because under our system, it gets penalized and has to pay money sometimes whenever renewables ramp up too much too fast.
We’re being penalized in our coal and also in our gas prices for the instability of wind and solar. Now, some of the wind and solar in this situation will disconnect from the grid because it doesn’t want to pay a penalty for supplying electricity. But for a range of technical and also contractual reasons, not all of it can disconnect. So now we have a problem. A bunch of renewables have simply disconnected to avoid paying to supply power. Gas is idling inefficiently, ready to take over the moment that it’s needed, which it will be sometime soon, but we don’t know when. Coal just has to take the price hit on the chin, paying money, being penalized for supplying power because it has no choice. It can’t ramp down any faster. And if it disconnects from the grid, then we are all screwed. And we still have a serious oversupply problem.
Enter the batteries. This is the perfect time for the batteries to charge and to actually get paid to do it. Negative prices mean that suppliers have to pay for supplying, but also that consumers get paid for consuming. Which is why if you look at this graph, look at the battery charging. It’s listed under loads with negative 174 gigawatt hours for which they were paid about $30 per megawatt hour or more than $5 million. They were paid just for adding a load to the grid at the time of over supply. And again, people point to this and say, “Look, we’re storing the free energy. They’re actually getting paid to take the energy. This is proof that renewables are cheaper.” No, it’s proof that renewables have so destabilized the grid that gas is idling inefficiently, coal has had to dump a bunch of its energy and run inefficiently whilst also being charged a fortune for continuing to provide its base load power. That money that the batteries are getting paid, where’s that come from? From the coal fired power plants, which makes it look way more expensive than it actually is.
Renewables are recklessly pumping energy into the grid whether it’s needed or not.
And batteries are soaking up some of the difference, which seems great until you remember that even after being paid to charge, batteries are still the most expensive form of energy supply when they pump that energy back into the grid alongside the cost of diesel generators, which is comparable in cost. Having a high percentage of renewables in your grid makes your power more expensive and way less reliable, as can be seen in this graph. Now, yes, there are places in the world with very little renewables and yet they still have very high power prices. That’s true. But there is nowhere in the world with a high percentage of so-called renewables and low power prices. And this is why renewables themselves cost a lot. But they also add instability and inefficiency in to the rest of the grid, making even coal and gas. And in countries with nuclear power, making nuclear power look more expensive than what it actually is.
But when you combine a high percentage of renewables with our insane bidstack energy market system, things get really perverse. Let’s go to a new example. If you have a period of high demand, then of course you’ll use all of your available renewables, but you don’t have control over how much that is. So let’s say it’s only that. Plus, you will of course use all of your coal and all of your gas. And in this particular example, we have just enough power. Now, this is still pretty good for consumers because generators are only being paid the gas price. But if something were to happen, oh, I don’t know, a sudden unscheduled shutdown of one of those dastardly unreliable coal power plants. Where have we heard that headline before? Something happens and just a little bit of the coal power supply goes offline. What comes online in its place? Well, in those moments where gas is already operating at its capacity, it’ll be batteries or diesel generators or something else stupendously expensive. And hey, presto, every energy generator right up and down the energy stack is suddenly making super profits because they’re no longer being paid the gas price. They’re being paid the battery price because somebody shut down one of their coal fired generators.
Now, I can’t prove that this has ever been done on purpose, but if you go back into the pricing data, you can see that some of Australia’s largest energy suppliers who have a mix of different energy types have at times made money from an unscheduled shutdown of one of their own coal power plants. Because whilst they have lost out on selling the energy that that coal turbine would have been producing, they’ve made a mint on all of their other generators because the price per unit of power was no longer the gas price. It was something much more expensive thanks to the shortfall which they created by the shutdown of a little bit of their coal supply.
This bidstack system is a mess filled with perverse incentives. But now that you understand a bit more about the mess, maybe you can see why simultaneously green carpet baggers are claiming that renewables are the cheapest and that coal is unreliable and getting more expensive. And yet, every time we add more renewables or shut down another coal power plant, our energy bills get even more expensive.
Now, energy prices are one of the most fundamental input costs in a modern economy.
So, this bid stack debacle isn’t just some academic problem. This is a key part of the reason why we’ve lost our manufacturing and our heavy industry and why we’re not getting data centers and high-tech industries because they all need energy and ours is too expensive, too unreliable, and our entire system has broken incentives which invite cynical manipulation of supply to reap super profits rather than incentivizing providing the cheapest power possible.
So, what’s the solution? Well, it’s not an easy one because too many people are making too much money from the current situation. But we need to get back to a system where power producers are simply contracted to produce power and paid a price that is profitable and reasonable for the power that they are producing. And any source of power that introduces these kinds of inefficiencies through their own variability needs to be financially priced accordingly. Which means that honestly it’s not that renewables are the cheapest or that they’re free. It’s actually that they’re worthless. They are simply not worth the money that we’ve paid to build the towers and the solar farms and the batteries in the first place because they are destroying the efficiency of the entire grid. Lots of people know that something is wrong, but not enough people know that this is what’s wrong.
Now that you know, I’d be very grateful if you would pass this video on. My name’s Topher Field. This is the Topher Project and this is what I do. I help busy people like you to make sense of the nonsense that surrounds us. If you’ve learned something today, then please help me to keep the Topher project going by buying me a coffee via the button at topherfield.net. And if you like my videos, then you will love my books about power, government, human rights, and civil disobedience, which you can find at goodpeoplebreakbadlaws.com.
Thank you for watching all the way to the end. The algorithm loves you, and so do I. I know this video was a bit of a long one and I’m sorry, but I really do believe that we need more Australians to understand just how insane the situation is with our renewables and the bid stack system. So, thank you for sticking around. Please like, comment, subscribe,
