The effect of wholesale electricity prices on Australia’s economy by Magnus Soederberg

Authors:

Magnus Soederberg

Abstract:

This study examines how wholesale electricity price levels and volatility affect firm value and capital investment in Australia. Using stock prices of Queensland firms from 2010 to 2019, we estimate two-stage least squares models in which electricity prices are instrumented with solar irradiance. We compare myopic, backward-looking, and forward-looking measures of expected electricity costs. The results show that investors are forward looking: a 10% increase in the predicted wholesale price level reduces firm value by about 0.9%, while a 10% increase in predicted price volatility reduces firm value by about 1.1%. These effects are observed across sectors and are particularly pronounced for basic materials and technology firms. Annual investment estimates for 2014–2023 indicate that higher price volatility reduces capital expenditure among energy-intensive Queensland firms. Simulations suggest that electricity price changes substantially reduced the value of Australia’s basic materials sector in 2023, highlighting a material macroeconomic cost of wholesale market instability.

About Speaker

Professor Magnus Soederberg is an energy and environmental economist and Director of Griffith University’s Centre for Applied Energy Economics and Policy Research (CAEEPR), a role he has held since 2022. His most recent work focuses on energy regulation, efficiency benchmarking and consumer responses to electricity prices. CAEEPR connects researchers with energy companies, government agencies and policymakers across Queensland and the wider National Electricity Market, supporting research and debate on the energy transition. The Centre also delivers executive education in energy and environmental economics and policy.