Will nuclear power reduce Australia’s electricity prices?

Article published 12 March 2024

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A shift to nuclear has been suggested for Australia’s electricity grid, but would if bring down electricity prices?

Electricity prices have gone down slightly in the past few months compared to the peaks seen last year, but they remain much higher than they were back in 2021 before inflation started to rapidly increase.

As is often the case, high electricity prices have spurred a conversation about the possibility of adding nuclear power to Australia’s electricity grid. But would building new nuclear power reactors lower electricity prices?

What does Australia’s electricity grid look like?

Before we can answer that, it’s worth looking at the current state of Australia’s electricity system. Most Australian residents get their electricity through the National Electricity Market (NEM), which is the electricity system that operates in Queensland, New South Wales, the Australian Capital Territory, Victoria, Tasmania and South Australia.

Within the NEM there are several different groups. Generators produce the electricity (from coal, gas, hydro, solar and wind). They then sell it on to retailers who sell it on to us. Coal is still the biggest single source of electricity in the system, but wind and solar are both catching up.

The whole system is administered by the Australian Energy Market Operator (AEMO), who is responsible for ensuring that the supply of electricity matches the demand that people need.

Wholesale vs. retail prices

The Australian Energy Market Operator (AEMO) is constantly measuring the electricity grid to see how much electricity is being used, and to ensure that enough power is being generated to match. Every 5 minutes, it tells all the generators within a region of the grid, how much power needs to be produced.

The generators will then bid to see which one can supply power at the lowest cost, with AEMO accepting prices from lowest to highest until all the required electricity in a 5 minute window has been accounted for. AEMO sets the price for that 5-minute window at the highest of the accepted bids, meaning that every generator whose bid is accepted is paid out at the same rate. This is called the ‘wholesale spot price’, and this is the price that retailers pay to generators. Retailers then sell that electricity on to us, but rather than receiving a bill every 5 minutes, our electricity bills are averaged out over a payment period.

What affects prices?

Wholesale prices are affected by a few different things. First, there is the cost of actually generating the electricity. This is quite high for coal and gas generators, as they must buy their fuel, whereas for solar, wind and hydro, fuel costs are non-existent. The rise in electricity prices over the past few years has been caused by the rising costs of coal and gas, which have been driven up by the war in Ukraine.

Then, there are operating costs for generators, including the cost of staff and maintenance of equipment.

Finally, there is the cost of the equipment itself. Generators will try to set prices that will cover their initial investment in the wind turbines, solar panels or coal-fired power plants. One of the reasons that no new coal-fired power plants have been built in the National Electricity Market recently is that they cannot sell electricity for enough to cover their building and operating costs.

Would nuclear power reduce electricity prices?

Nuclear power stations are incredibly expensive to build, and not cheap to run either. Because any nuclear power station would have to recoup its initial build costs, it would struggle to compete with the prices of coal and gas power, let alone the much cheaper renewables. So even if nuclear power managed to replace some of the existing coal or gas generators, this would likely send prices up, not down.

Lower prices are on the way

While wholesale prices drove most of the increase in electricity prices, they have dropped by nearly half compared to the middle of last year (and more than that in some states). So when will we see lower electricity prices?

Hopefully, prices will start to go down after July 1st. This is when the Australian Energy Regulator (AER) sets the ‘default market offer’ for the year, which effectively sets a maximum price for retail electricity rates.


If you live in NSW:

If you are elsewhere in Australia, you can find information on assistance here. You can also use the Australian Government’s Energy Made Easy website to compare energy retailers and find the right plan for you.

If you’re having trouble figuring out how to find the information you need, you can also get in touch with us on 1800 451 488.

For more information please email our media contact at media@cpsa.org.au

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