So we all know that a massive use of electricity on a single day means energy costs skyrocket. But did you know exactly why? And what does that mean for big electricity companies?

A recent article by Climate Spectator has explained why soaring Australian temperatures mean a massive payday for electricity companies. When Melbourne reached a scorching temperature of 44.3°C one day in the January of 2009, the constant running of air conditioners and fans across the state meant that energy demand was at a record high – and it also meant that the wholesale price of electricity never fell below $1000/MWh. For nearly four hours that hot day, the price hovered around $10,000/MWh. To put that into perspective, normal wholesale prices are between $35-$50/MWh.

The article states, “The way the National Electricity Market works means that every generator switched on at that time receives that price, even though it still only cost the brown coal generators around $4/MWh to shovel the coal into their power plants. Over an eight-hour period, the state’s generators would have pocketed an estimated $550 million in revenue, near one fifth of their total revenue for the year”.

It is estimated that about one quarter of annual electricity sales is actually gained from just a single 24-36 hour period each year.

What, you ask, does all of this exactly mean for solar energy? Well, let’s look at that scorcher of a day in January, something that we all know is headed our way again soon this summer or next. If there had been a lot of solar energy available for use that day to aid in the power demand, the Melbourne Energy Institute at the University of Melbourne believes that prices would still of course have been high, but not over $300/MWh – and definitely for not as long. The day’s total revenue would have been just over $340 million – half of what it would otherwise have been.

Solar power technologies that are ‘powered’ by the natural elements, such as the sun and the wind, bring the wholesale cost of energy right down. And those companies that use high-cost fuel such as coal and gas are understandably threatened by this.

Many believe this may be why state governments in Australia - Victoria and NSW in particular - are hesitant to bring in large scale solar energy initiatives. Unfortunately at the moment, the distribution of solar and wind based energy is at a standstill, due to ‘policy uncertainty’.