What is the National Electricity Market?

The National Electricity Market (NEM) is a wholesale electricity market that participants like retailers can buy and sell energy across the east states of Australia.

Since 1988, the National Electricity Market, otherwise known as 'the NEM' is responsible for electrically 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.

Overall, the NEM is an extremely important part of ensuring electrical grid balance and distribution throughout the East Coast of Australia.

Courtesy of Australian Energy Market Operator

Why does the National Electricity Market Exist?

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.

The NEM has interconnected QLD, NSW, VIC, SA, and TAS, and is responsible for distributing electricity to balance grid supply and demand in real-time, for almost 10 million residential, commercial, and industrial energy users.

How does the National Electricity Market Work?

Even with supercharged battery adoption throughout Australia, electricity can't be easily stored in large amounts, which means that the electricity needs to go somewhere.

To balance supply and demand at all times, the NEM manages generation like coal, gas, hydro, wind, and solar, retailers, 40,000km of transmission lines, and the Australian Energy Market Operator (AEMO).

To ensure the grid remains stable and both supply and demand are balanced, the AEMO manages the NEM in real time, where they forecast consumption, monitor system health and security, and coordinate distribution.

Once a retailer like Origin, AGL or Energy Australia buys electricity from the NEM, they sell it to homes and businesses which is transported through high-voltage electricity lines from power stations. Retailers are obligated to supply us with energy at a fixed price, in-which they absorb any market price fluctuations.

What does AEMO mean? 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.

How does National Electricity Market Pricing Work?

The National Electricity Market prices are dynamic in nature where they vary depending on elements like location, time, fluctuations in demand, mix of various energy sources, transmission, and fuel expenses.

In peak consumption periods where renewable energy generation is low, the energy prices rise. Abundant renewable energy generation like solar and battery helps reduce wholesale prices.

There are 2 elements that determine the price of the wholesale electricity: the offers submitted by generators and the level of energy demand at any given time.

The spot price is determined every 5-minutes, which is averaged over a 30-minute period to calculate the half-hourly spot price for each region.

Depending on the supply and demand balance, electricity prices in the NEM are volatile and can fluctuate throughout daily, monthly, or even seasonal periods. Other elements like weather events, generation, and supply shortages can negatively impact prices.

The NEMs minimum and maximum wholesale electricity prices range from the market floor of $1,000 per MWh to a market cap of $14,700 per MWh.

ROOF SOLAR & FARMS - 36.3%

31,594 MW

BLACK COAL - 18.9%

16,389 MW

BROWN COAL - 5.4%

4,690 MW

WIND - 14.7%

12,760 MW

GAS - 12.4%

10,799 MW

HYDRO - 8.8%

7,609 MW

BATTERY - 2.8%

2,455 MW

OTHER- 0.7%

649 MW