Wholesale electricity prices are set every five minutes by matching generator offers to demand, and on sunny, mild days they can fall below zero. Here is how the market works, why negative prices happen and what they mean for homes with solar and batteries. Wholesale electricity prices in eastern Australia are set every five minutes by lining up generators' offers from cheapest to most expensive and dispatching as many as needed to meet demand. The offer of the last generator needed sets the price for everyone in that region. On sunny, mild days, so much low-cost solar and wind is available that some generators offer power below zero, because stopping would cost them more than paying to keep running. Households on standard retail plans do not see those negative prices directly, but they are reshaping tariffs, feed-in rates and the value of batteries.
How the wholesale market sets a price
The National Electricity Market links Queensland, NSW, the ACT, Victoria, South Australia and Tasmania. It works as a continuous auction run by the market operator:
- Offers: each generator submits price bands stating how much electricity it will supply at each price.
- Forecast demand: the operator forecasts demand in each region for the next interval.
- Dispatch: offers are stacked from lowest to highest price, known as the merit order, and generation is dispatched up the stack until demand is met, subject to limits on the transmission links between regions.
- Price: the price of the last increment of generation needed sets the regional price for that five-minute interval.
- Settlement: generators are paid that price for their output, and retailers pay it for the electricity their customers use.
Because everyone receives the same regional price, a solar farm with almost no running cost earns the same as a gas generator in that interval. What differs is how each one bids. The market rules also set a price cap and a price floor, which bound how high or low prices can go.
Who bids what, and why
| Type of generation | Running cost | Typical bidding behaviour |
|---|---|---|
| Solar and wind farms | Close to zero, no fuel | Offer at very low prices so they run whenever sun or wind is available |
| Coal plants | Fuel costs, and slow and costly to stop and restart | Offer a minimum level cheaply, sometimes below zero, to avoid shutting down |
| Hydro | Low running cost, but water is limited | Save water for higher-priced periods |
| Gas peaking plants | Higher fuel costs, fast to start | Offer at higher prices and run mainly at peaks |
| Large batteries | Buy their energy from the market | Charge when prices are low and discharge when prices are high |
Regions are joined by interconnectors with limited capacity, so prices can separate. When those links are fully used, NSW might see a moderate price while a neighbouring region with abundant midday solar sees a negative one. When the links are not congested, prices in connected regions move closer together, adjusted for losses in transmission. Generators can also revise their offers within the rules as forecasts change through the day.
Why prices go negative
A negative price means generators are effectively paying to supply electricity. It sounds irrational, but each participant can have a sound reason to keep running:
- Inflexible plant: large thermal generators have minimum stable operating levels and can take many hours to restart. Accepting a short spell of negative prices can cost less than shutting down and missing the evening peak.
- Certificate income: large renewable generators can earn certificates for the energy they produce, which can make generating worthwhile even when the energy price is slightly below zero.
- Contracts: generators paid under fixed-price contracts are less exposed to the spot price in the moment.
- Rooftop solar: household solar is not dispatched by the market at all. It reduces the demand the market must meet, so in the middle of sunny, mild days the demand left for large generators can fall to very low levels.
Negative prices tend to occur around the middle of the day, especially in spring and autumn when sunshine is strong but heating and cooling demand is low. They often give way to high prices in the early evening, when solar fades and household demand climbs.
What negative prices mean for households
Most households buy electricity on retail plans with set rates, so they are shielded from five-minute wholesale movements in both directions. They are not paid to use power at midday, and they are not hit directly by evening price spikes. The effects arrive indirectly:
- Tariff design: low midday wholesale costs help explain why some time-of-use plans offer cheaper daytime windows while evening peak rates stay high. See understanding time-of-use tariffs.
- Feed-in tariffs: midday exports are worth little on the wholesale market when prices are low or negative, a major reason feed-in tariffs are now commonly only a few cents per kWh. See understanding feed-in tariffs.
- Wholesale-linked plans: a small number of retail plans pass wholesale prices through. Households on these can benefit from using power when prices are negative, but they may also pay to export at those times and face high evening prices. They suit homes that can automate their response.
- Export control: some systems and plans automatically reduce solar exports when prices fall below zero.
Where batteries and flexible loads fit
The daily pattern of low midday prices and high evening prices is exactly the gap that storage bridges. At grid scale, large batteries charge in the cheap hours and discharge into the evening peak, which also helps smooth prices. The same logic applies at home on a smaller scale:
- a home battery stores midday solar that would otherwise be exported for little value;
- flexible loads such as hot water, pool pumps and EV charging move into the middle of the day;
- batteries in a Virtual Power Plant can be dispatched when wholesale prices spike, earning credits or payments under the operator's terms.
None of this requires a household to trade in the market directly. Retailers, VPP operators and energy management systems translate wholesale signals into prices and schedules that households can act on.
Next steps
Understanding when your home uses and exports electricity makes wholesale-driven pricing easier to work with. The Battery Feasibility Study (from $199 per property) and the Solar + Battery ROI Report (from $199 per property) are listed in the energy market. Prices are indicative and confirmed after a site assessment. To explore how solar and storage could shift your usage away from expensive periods, request a free assessment from Blue Energy Solar.
Frequently asked questions
Why don't retailers pass negative prices straight to customers?
Retailers manage wholesale risk across many customers and many hours, using contracts that smooth price swings. Passing through every five-minute price would expose households to sudden evening spikes as well as midday lows, which most customers prefer to avoid. Standard plans therefore average these costs into set rates, while wholesale-linked plans remain an option for customers willing to accept the volatility.
Do negative prices mean the grid has too much solar?
Not exactly. Negative prices show that, for a period, low-priced supply exceeds demand and some generators prefer paying to keep running over shutting down. They signal a need for more flexibility: storage, shiftable demand, transmission and generation that can ramp down easily. As that flexibility grows, the midday surplus becomes more useful rather than something to be curtailed.
Can a household sell electricity directly into the wholesale market?
Not individually. Participating in the market requires registration and systems designed for large generators and retailers. Households reach wholesale value indirectly: through their retailer's feed-in tariff, a wholesale-linked retail plan, or by enrolling a battery with a Virtual Power Plant operator that combines many homes and participates on their behalf.
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