The Great Energy Paradox: Cheaper Generation, Pricier Bills

In the fossil fuel era, electricity prices moved in lockstep with generation costs. When coal and natural gas prices surged, electricity bills followed; when fuel costs dropped, consumers saw immediate relief. This “fuel-cost determinant” model characterized most traditional power systems.

When Green Energy Breaks the Pricing Model

The massive integration of renewables has created a structural decoupling between generation costs and final electricity prices. While wind and solar produce electricity at record-low costs—even generating negative prices—this “cheap green power” comes with three hidden costs that undermine the entire system:

1. Price Signal Collapse - Frequent negative prices distort market signals, forcing conventional plants to exit and weakening grid stability
2. Dispatchability Gap - During extreme weather, renewable output plummets, exposing critical shortages in backup capacity
3. System Cost Shifting - Grid upgrades and storage investments needed for stability ultimately get passed to all consumers

This is the structural paradox of the renewable era: generation costs fall while system costs rise.

The “Bad Money Driving Out Good” Phenomenon

Over the past two decades, countries diversified their energy mix with natural gas, nuclear, and early renewables to reduce coal dependency. The U.S. shale revolution exemplified this strategy, lowering electricity prices and enhancing energy security.

But today’s rapid renewable expansion reveals new structural flaws. Wind and solar generation costs have plummeted to just 20-30% of natural gas costs in optimal regions. These near-zero marginal cost resources continuously squeeze traditional plants in wholesale markets, frequently driving prices to zero or negative.

The vicious cycle accelerates: lower prices → more traditional plant closures → higher renewable penetration → further price depression. This creates a classic case of “bad money driving out good”—cheaper but less stable resources dominate, while synchronous generators providing crucial inertia and regulation get marginalized.

Why Your Bill Doesn’t Reflect the Savings

Europe, Australia, and North America all experience prolonged negative pricing periods. Australian data reveals the disconnect: wholesale prices in 2025’s third quarter were 30% lower than 2024 and 40% lower than 2023, thanks to wind and solar generation increasing by 11% and 16% respectively.

Yet residential electricity bills tell a different story: 2023 saw price increases, 2024 brought less than 4% reduction, and some areas continued climbing. Consumer savings amounted to less than one-tenth of generation cost reductions.

Where Do the “Savings” Disappear?

When 90% of potential electricity cost reductions vanish between generation and consumption, where does the money go?

1. Grid Upgrade Costs - Massive investments in transmission/distribution expansion, stability enhancements, and system upgrades get baked into rate structures
2. Structural Cost Components - Network fees, taxes, capacity payments, and carbon trading mechanisms absorb generation savings
3. Ancillary Service Costs - As traditional plants exit, the system pays premium prices for frequency regulation and backup capacity

The cost-of-service recovery model ensures every grid investment enters the rate base, allowing transmission operators to completely offset generation savings through higher fees.

The Fundamental Conflict

Renewables and traditional grids face accelerating contradictions, with costs ultimately transferred to consumer bills through two worsening structural problems:

① Energy Market Failure Price signals become increasingly distorted, failing to reflect the system’s actual need for conventional capacity

② Dispatchability Crisis When extreme weather hits and renewables go offline simultaneously, insufficient rotating reserve forces reliance on expensive storage solutions

The bottom line: While generating one kilowatt-hour from renewables is cheap, delivering it reliably and securely is anything but. The “bad money” isn’t the technology itself, but the negative effects on system inertia, strength, and dynamic stability. The disappearing “good money” represents the crucial grid services that traditional synchronous generators provided.

Seen similar patterns in your country’s energy transition? Share your observations below. ⚡