Coal, gas or renewables: What is to blame for rising electricity prices?
Energy and Climate Change Senior Fellow at the Grattan Institute Tony Wood spoke to the Gippsland Monitor about power bills, how they work and what impacts them.
Jacob Wallace
August 13, 2025
Have you ever stopped to think about why the price of electricity is so high? Did I leave the electric heating on all month?
One person who has thought a lot about the price of electricity is Tony Wood, an Energy and Climate Change Senior Fellow at the Grattan Institute. The Gippsland Monitor spoke to Wood about energy bills, how they work and what impacts them.
What costs make up your energy bill?
“Typically a household might have a bill of a couple thousand dollars a year,” said Wood.
The three main components impacting electricity price in such a bill are:
How much it costs to make.
How much it costs to deliver.
The price set by retailers.
Wood says retailers are like supermarkets. When you purchase ice-cream from a supermarket, you’re not buying it directly from the manufacturer. Woolworths, Coles, IGA and Aldi are retailers that buy the ice-cream from the manufacturer and sell it on to you.
“Of that bill about 40 percent is the cost of making electricity,” said Wood. “About 40 percent is the cost of transporting electricity.”
The final 20 percent is a combination of the extra cost of supporting renewable electricity, and business costs borne, and profit made, by the retailer.
How do coal, gas and renewables impact your electricity bill?
As Australia shifts to using more renewables as part of our electricity mix there’s been increased scrutiny on what the cheapest form of energy is.
The federal government has been talking about using electricity generated from gas to fill the gaps when solar and wind power aren’t producing enough electricity to meet demand.
Wood said wind and solar were very cheap when they were available, “but they’re not available all the time”.
Although we get free energy from the sun, the cost is offset by “what we have to do to make sure it’s reliable and we have energy sources available, like gas, when we don’t have enough sun and wind”.
Wood said “there was a time 20 years ago when gas was very cheap and solar and wind were very expensive. That's been changing over the last 20 years”.
Gas will continue to be used as a backup to renewable energy when wind and solar aren’t available, he said, but because gas is significantly more expensive, it drives up the price of electricity when it is used.
Wood said the price of domestic gas can also fluctuate due to international events, such as the war in Ukraine. When European countries stopped buying Russian gas and started buying from other sources it significantly increased the price of gas and therefore the price of electricity.
Also, Australia’s ageing coal fired power stations contributed to rising costs.
“For most of us, it costs more to maintain our bodies as we get older,” Wood said. “We break down more - that’s what has happened with coal fired power stations.”
