Asking a group of people to define ‘the cost of electricity’ is a bit like asking a group of aliens to describe an elephant. Some people will refer to the ‘delivered’ cost (see Understanding Your Electricity Bill) while others will refer to the commodity cost i.e. the raw cost of the actual electricity before network costs, environmental levies and retailer margins are added. And even then everybody will have their own view of the commodity cost.

An understanding of the commodity cost is a key component to the negotiation of an electricity contract. It provides an understanding of when a contract should be settled and helps set target prices for the final retail rates.

Up-to-date price information is available in our client login portal.

All electricity in the National Electricity Market (NEM) is traded via a gross pool which is settled in five minute intervals. Each jurisdiction or state settles its own pool price so there are actually 188 prices per day for each of the five participating states (NSW, QLD, SA, TAS and VIC). These prices, known as the Pool Price or Regional Reference Price (RRP), can go as high as $12,500 per MWh (known as MPC, Market Price Cap). Our National Electricity Market is anecdotally known as the most volatile commodity market in the world.

The WEPI provides a good indication of how wholesale electricity prices are tracking. This index is a function of pool price and publicly available contract prices as settled on the Sydney Futures Exchange.

Both the WEPI and the RRP are indications of current and historical wholesale electricity prices. In many cases, we are more interested in indicative future electricity prices and how they are tracking. To this end, Key Energy & Resources has developed the Electricity Futures Index which is based on data from the Sydney Futures Exchange, and tracks the price of electricity for a three year period ahead of any given date. Thus, the EFI for year n is an indication of electricity prices for year n+1, n+2 and n+3.