What is the National Electricity Market?

The National Electricity Market, otherwise known as 'the NEM' is responsible for interconnecting Australian states NSW, ACT, QLD, VIC, SA, and TAS.

As it is difficult to store electricity, they distribute the electricity into the markets as a “pool”. The “pool” or spot market is where supply and demand of power is instantly complimented through a centralised process.

In the nature of electricity, supply always needs to be balanced with demand. At times of imbalance, where supply or demand outstrips the other, it causes grid voltage drops as electricity always needs somewhere to go.

In times of too little energy generation as well as strong demand causes the grid to drop voltage, and the reverse to cause a rise in the grid's voltage which has the ability to damage appliances.

So overall, the NEM is an extremely important part of ensuring grid balance and distribution throughout the East Coast.

Courtesy of Australian Energy Market Operator

How Does the National Electricity Market work?

The National Electricity Market is responsible for distributing electricity to both south and south-eastern Australia, where interconnection allows for balance.

On the electricity wholesale market, parties and market participants auction to buy and sell energy with supply and demand being balanced in real-time.

Designed in the most cost-efficient way to deliver electricity, the cheapest energy providers are put into operation first and then is coordinated through a distribution process.

The National Electricity Market operates in real-time and typically at 30 minute intervals throughout both day and night.

Energy retailers buy electricity from this wholesale market, which they either are contracted to buy at a certain price, or purchase on the spot or immediate market cost which may vary from contracted pricing.

The retailer then sells us that energy. Because the retailer has an obligation to supply us with energy at a fixed price, they must absorb any unforeseen market price rise.

Also, if the market has been kind to the retailer the price, he pays at a particular instance might have been lower than expected, hence a windfall for the retailer. Until the energy regulator permits a retail price rise the retailer is obliged to sell us the energy at a fixed price, and he must absorb, by using various financial instruments.

The organisation which controls the NEM is the Australian Energy Market Operator (AEMO). The AEMO receives its operating rules and authority from the Australian Energy Market Commission (AEMC) which in turn receives its overarching authority and policy from the state governments in which the NEM operates.

In the auction process described above where the lowest cost generators are selected over more expensive ones it is easy to see that those generators which do not have fuel costs via. Solar and Wind, will have a natural advantage over fossil fuelled generators.

COAL - 64.67%

131.27 TWh

GAS - 6.57%

13.33 TWh

WIND - 10.45%

21.20 TWh

HYDRO - 7.21%

14.64 TWh

SOLAR - 3.85%

7.81 TWh

Distributed PV - 7.09%

14.39 TWh

BATTERY - 0.05%

0.11 TWh

BIOMASS - 0.09%

0.18 TWh