The National Electricity Market (NEM) is an arrangement in Australia's electricity sector for the connection of the electricity transmission grids of the eastern and southern Australia states and territories to create a cross-state wholesale electricity market. The Australian Energy Market Commission develops and maintains the Australian National Electricity Rules (NER), which have the force of law in the states and territories participating in NEM. The Rules are enforced by the Australian Energy Regulator. The day-to-day management of NEM is performed by the Australian Energy Market Operator.
NEM operations began on 13 December 1998 and currently covers Queensland, New South Wales, Australian Capital Territory, Victoria, Tasmania and South Australia. Western Australia and the Northern Territory are not connected to the NEM. The NEM comprises five regions, with the ACT being in the NSW region. Tasmania joined the NEM in May 2005 and became fully operational on 29 April 2006 when the Basslink interconnector was fully activated. The Snowy region was abolished as a region on 1 July 2008 and the components split between New South Wales and Victoria. The Northern Territory has adopted parts of the National Electricity Law, with the Australian Energy Market Commission becoming the rule maker for the Territory for parts of the National Electricity Rules from 1 July 2016. Western Australia is also considering adopting parts of the NER.
The NEM operates one of the world’s longest interconnected power systems between Port Douglas, Queensland and Port Lincoln, South Australia, with an end-to-end distance of more than 5,000 kilometres, and 40,000 kilometres of high voltage transmissions line. During the 2017-18 financial year, 203 TWh of electricity with a market value of AU$17 billion was traded through the NEM, serving 9.7 million end-use consumers. Approximately 40% of NEM generation is consumed in New South Wales, while Victoria and Queensland consume approximately 25% each.
FY19/20 rooftop solar capacity was 10,696MW, NEM capacity 49,832MW, NEM demand 35,626MW
Operation of the market
Exchange between electricity producers and electricity consumers is facilitated through a spot market where the output from all generators is aggregated and instantaneously scheduled to meet demand through a centrally-coordinated dispatch process. This process is operated by the Australian Energy Market Operator (AEMO) in accordance with the provisions of Australian National Electricity Law and Australian National Electricity Rules.
Scheduled generators submit offers every five minutes of every day. From all offers submitted, AEMO’s systems determine the generators required to produce electricity based on the principle of meeting prevailing demand in the most cost-efficient way (see also Economic dispatch). AEMO then dispatches these generators into production by sending automatic generation control (AGC) target signals to each generating unit.
A dispatch price is determined every five minutes (termed Dispatch Intervals, abbreviated as DI) to determine the spot price for each 5-minute trading interval abbreviated as TI. Before October 2021, six dispatch prices were averaged every half-hour. There are 5 trading regions for each of the regions of the NEM. AEMO uses the spot price as the basis for the settlement of financial transactions for all energy traded in the NEM.
There is a maximum price that generators can bid in at. Under the Rules, the AEMC adjusts this maximum spot price MPC (market price cap) by movements in the consumer price index by 28 February each year for the rate to commence on 1 July. For the 2020-2021 financial year the MPC was $15,000/MWh. There is a further limit on the price called the Cumulative Price Threshold, which is the sum of value of all the TI's for the previous 7 days, calculated on a rolling basis. When this exceeds $224,600, AEMO caps the bids to a nominated value, currently $300/MWh. Whilst the price is capped in this manner, it is known as an Administered Price period. The process continues until the rolling average drops to allow normal trading without impinging the threshold too rapidly again.