Many of us feel powerless looking at our power bills.

In South Australia this is no surprise. In July, the average household was slugged with price rises of up to 20 per cent. The southern state has the nation's highest household power prices and, depending on who you believe, perhaps the highest prices in the world.

How did it come to this? That question has been on the mind of Jamie Young, a mechanical engineer from Adelaide's northern suburbs.

With a young child at home, he's watched his power bill rise dramatically.

"Why does Adelaide have the most expensive electricity and who is in control of the companies?" Jamie asks.

Curious Adelaide went in search of the answers.

Young dad Jamie Young was curious to know why South Australians pay more for their power. ( ABC News: Nick Harmsen )

The ingredients: what goes into your power bill?

There are several costs that go into your power bill: the cost of generating the power, transmitting it through high-voltage lines and distributing it to your house.

There is the retailer who is selling you the power and then there are the green schemes — government subsidies provided to encourage development of renewable energy, which are paid via levies on everyone's bill.

Stobie poles are owned and operated by SA Power Networks. ( ABC News: ABC News )

Two decades ago, all these costs were controlled by government. But since the electricity system was privatised in the late 90s, a host of private companies have an interest.

The high-voltage transmission lines are owned by ElectraNet (which is partly owned by the Chinese Government).

The lower voltage lines strung from the Stobie poles in your street are owned and operated by SA Power Networks (majority owned by Hong Kong-based Cheung Kong Infrastructure Holdings).

Then there are a host of different companies which act as retailers, or own generators, or both (they're sometimes called 'gentailers'). Think AGL, Origin Energy, Simply Energy of Energy Australia.

Many of these companies own a mixture of generation assets, from wind farms, to gas or diesel power plants.

The Australian Competition and Consumer Commission (ACCC) recently conducted analysis of household power bills around Australia. The results were illuminating.

While many of the price hikes in the eastern states were driven by increases in network costs (poles and wires), South Australia's recent price hikes were driven by the cost of generation.

The chart below shows over the past decade, household bills have risen by almost 50 per cent. Of that increase, almost half was attributable to increases in the cost of generation.

This graph from the ACCC Retail Electricity Pricing Inquiry 2017 shows the sharp rise in electricity costs. ( ACCC )

Network costs were responsible for 27 per cent of the increase, while retail costs (12 per cent) and green schemes (16 per cent) make up the rest.

So let's delve into why generation costs have risen so much.

Wholesale market: it is, and isn't, like buying fruit and veg

Electricity generated in the National Electricity Market (South Australia and the eastern states) is bought and sold on a wholesale market.

It's a bit like a fruit and vegetable market, but the only products for sale here are electrons.

Generators bid in offers of electricity every five minutes. Renewable generators which have low or no fuel costs, and separate subsidies to operate, can bid into the market at very low, sometimes negative, prices.

A strong reliance on wind power has made South Australia's energy market particularly volatile. ( ABC News: Matthew Doran )

Coal is relatively cheap, gas less so.

A coal plant might bid into the market at, say, $40 to $50 per megawatt hour. If electricity is in high demand on a really hot day, a peaking gas generator may bid into the market at a price running to hundreds of dollars, or maybe even the maximum allowable: $14,200 per megawatt hour.

But remember — we're buying and selling electrons, not apples here. And the way pricing in this market works is a little strange. Power is dispatched by the market operator in order of price from lowest to highest.

Essentially, the final megawatt of energy dispatched by the market operator to meet the required demand sets the price paid to every other operating generator.

Let's return to our fruit and vegetable analogy: let's pretend you need to buy 100 apples. One wholesaler might be willing to sell you 99 apples at 10 cents each. But you still need one more apple. If the next most expensive wholesaler is offering his apples at $10 each, you will have to pay $10 for each and every one of those apples!

The same goes for electricity. If the last generator to be dispatched is offering its energy at $14,000 then everyone gets paid $14,000 — even those who had offered their electricity to the market for nothing.

How do you like them apples?

Supply and demand

For some deeper understanding of what's happening in the South Australian electricity market, Curious Adelaide and our questioner Jamie met with electricity expert Reza Evans.

Reza began his energy career in the Electricity Trust of South Australia more than 20 years ago. For the past decade, his company CQ Partners has been helping governments and big energy users like BHP and Adelaide Brighton Cement understand how these markets work and how to save money.

Reza Evans is used to monitoring the wholesale markets from his office. ( ABC News: Nick Harmsen )

Reza told us the driving force in recent price hikes has been a tightening of supply and demand, which kicked off with the closure of the state's last operating coal power plant at Port Augusta.

"Probably the main one in South Australia has been the removal of Northern Power Station which was a 540-megawatt power station that was baseload, fairly stable, fairly low cost," he said.

"What effectively has replaced Northern Power Station has been more renewables and also more interconnection between us and Victoria."

Sorry, this video has expired Demolition continues at the Northern Power Station

The coal closure means power generated by a more expensive fuel source — gas — is more regularly setting the price.

"South Australia is now much more reliant on gas-fired generation … which is a higher cost of energy compared with what Northern used to be," Mr Evans said.

"The price of gas has nearly tripled in the past few years and that has meant that the fundamentals of where we get our energy from has increased substantially."

But wait — aren't renewables meant to be cheap?

South Australia has a world-leading penetration of intermittent renewable technology approaching 50 per cent and that's helped hasten the demise, or force the temporary shutdown, of coal and gas.

In the words of the ACCC:

"The transition from large-scale synchronous generation to variable and intermittent renewable energy resources has had a more pronounced effect on retail prices and number of offers in South Australia than any other state in the NEM."

Mr Evans said the increasing reliance on wind meant the market was more volatile.

The changing output of SA wind farms on display at CQ Partners head office. ( ABC News: Nick Harmsen )

The problem is compounded by the fact that wind and solar have inherently different characteristics to traditional thermal power plants when it comes to managing things like frequency and voltage.

At times of high renewable output and low demand, authorities are now intervening in the market and ordering more expensive gas generators to switch on.

That's because if the power mix suddenly changes, there's risk of the grid collapsing and a statewide blackout.

South Australia also has a very high concentration of generator ownership in the hands of just a few businesses.

For instance, one company — AGL — supplies 48 per cent of the state's retail customers and controls 42 per cent of generation capacity.

The big three — AGL, Origin and Energy Australia — have more than 70 per cent of the market. And that can make life difficult for new competitors.

Hedging bets a barrier to competition

Here's where things get really tricky.

Households like to pay steady prices for their power but the wholesale market is extremely volatile.

For that reason, the power retailers and big power users often enter complex hedge contracts with generators to lessen their exposure to market volatility.

Essentially, hedge contracts enable energy retailers to pay energy generators more for power to share some of the risk of wild swings in spot prices.

But the problem is, in South Australia, not many hedge contracts are being signed.

Reza Evans from CQ Partners explaining to Curious Adelaide how energy markets work. ( ABC News: Nick Harmsen )

Reza Evans says the big power retailers who also own generation (the gentailers) like AGL, Origin and Engie can internally hedge their own risk.

But it's a different story for second-tier retailers, like Alinta, Red Energy, Power Direct and Dodo.

"If you haven't got physical generation, you're forced to go and buy hedges. And that is problematic in South Australia."

The ACCC has reported similar worries. It says limited access to hedging contracts is "a significant concern in South Australia" and "a barrier to entry".

The competition watchdog says it's aware of at least one retailer which has chosen not to enter SA due to contract liquidity issues.

It all sounds complex, but it's not really. High market concentration leads to less competition, which leads to higher prices.

Is there a way out of this mess?

It's about this point of Curious Adelaide's investigation that our heads started to spin faster than an electron.

So we asked Reza Evans for some words of hope.

Work on Tesla's 100-megawatt Tesla lithium ion battery near Jamestown began earlier this year. ( ABC News: Nick Harmsen )

"The market is starting to see some change. It's taken a while," he said.

"This market is actually designed to do this. It's actually designed for high prices to occur, for investment to follow and for prices to reduce again. It's not what customers like, I don't like to see it either."

While that sounds like cold comfort for those struggling to pay to keep their air conditioners running, those high prices should result in new supply to correct the supply/demand balance.

"The more high price events you see, the more incentive there is to build new generation facilities to come into the market. If you just saw low prices all the time, nobody would invest."

In recent months South Australia has seen a swathe of energy announcements. Some are purely market driven, others subsidised by government.

AGL's promising to replace part of its ageing Torrens Island generator, Tesla is building the world's most powerful lithium ion battery and British billionaire Sanjeev Gupta has plans for a renewable energy led recovery for his Whyalla steelworks.

Tesla boss Elon Musk in Jamestown, where his company is building ta huge lithium ion battery. ( ABC News: Andrew Burch )

Eventually, all these things should help household bills.

But, in the meantime, Reza Evans has some salient advice for Jamie and the rest of us.

"I'd say shop around. There are a few good websites that give you information about who are the lower cost retailers," he said.

"I would definitely investigate solar PV to see if you could lop off the majority of your daytime use. That should pay off in the long run."