Otis Singleton
The National Electricity Market (NEM) is Australia's electricity market, operating in the eastern and southeastern states of Australia. The NEM is both a wholesale electricity market and a physical power system. The Australian Energy Market Operator (AEMO) manages the day-to-day operations of the NEM, as well as providing strategic forecasting and planning advice. AEMO is an independent organisation that operates on a user-pays cost-recovery basis. The Australian Energy Market Commission (AEMC) develops the rules by which the market must operate, and the Australian Energy Regulator (AER) enforces these rules.
| Characteristics | Values |
|---|---|
| Name of the market | National Electricity Market (NEM) |
| Area covered | Queensland, New South Wales, Australian Capital Territory, Victoria, Tasmania and South Australia |
| Started operations on | 13 December 1998 |
| Type of market | Wholesale electricity market and physical power system |
| Managed by | Australian Energy Market Operator (AEMO) |
| Rules developed and maintained by | Australian Energy Market Commission (AEMC) |
| Rules enforced by | Australian Energy Regulator (AER) |
| Governance structure | Includes AEMO, AER, AEMC, Energy Security Board (ESB) and Council of Australian Governments (COAG) Energy Council |
| Number of customers | Around 9 million |
| Transmission lines and cables | Covers around 40,000 km |
| Market value | AU$17 billion |
| End-use consumers | 9.7 million |
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What You'll Learn
The National Electricity Market (NEM)
NEM comprises five regions: Queensland, New South Wales (including the Australian Capital Territory), Victoria, Tasmania, and South Australia. The Australian Energy Market Commission (AEMC) develops and maintains the Australian National Electricity Rules (NER) that govern the NEM, while the Australian Energy Regulator (AER) enforces these rules. The day-to-day management of NEM is handled by the Australian Energy Market Operator (AEMO), which operates the retail electricity markets underpinning the wholesale market. AEMO coordinates the exchange between electricity producers and consumers through a spot market, ensuring that the output from generators meets demand in the most cost-efficient way.
The wholesale market operates through a common pool where wholesale trading in physical electricity determines an electricity spot price based on supply and demand. Alongside the wholesale market, financial markets enable retailers and generators to enter into contracts to buy and sell electricity at an agreed price, helping retailers manage the risk of volatile wholesale prices.
NEM reliability standards are established by the AEMC Reliability Panel, requiring that unserved energy per year for each region does not exceed 0.002% of the total energy consumed. To meet the required standard of supply reliability, the NEM is mandated to maintain defined levels of reserve, with AEMO responsible for ensuring sufficient reserve across the entire NEM.
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The Australian Energy Market Operator (AEMO)
AEMO manages the National Electricity Market (NEM), the Wholesale Electricity Market (WEM) in Western Australia, and the Victorian gas transmission network. NEM is a wholesale electricity market and a physical power system that operates in the eastern and southeastern states of Australia. It covers around 40,000 km of transmission lines and cables, supplying electricity to around 9 million customers. AEMO also operates the retail electricity markets that underpin the wholesale market.
AEMO has several departments, including Engineering and Design, Forecasting, National Planning, Operational Forecasting, Markets and Strategies, and administrative, safety, people culture, and human resources departments. It also has offices across Australia in cities like Melbourne, Brisbane, Sydney, Perth, and Adelaide, as well as some regional offices.
AEMO provides strategic forecasting and planning advice and has strategic partnerships with institutions and energy brands across Australia and globally, including the Bureau of Meteorology (BOM) and CSIRO. It runs regular working groups and forums that allow energy stakeholders to discuss issues and share information.
AEMO's role is to ensure Australians have access to affordable, secure, and reliable energy. It helps facilitate the transition to renewable energy and plays a critical role in managing the energy system and planning for the future.
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The Australian Energy Market Commission (AEMC)
AEMC develops and maintains the Australian National Electricity Rules (NER), which have the force of law in the states and territories participating in the National Electricity Market (NEM). These rules are then enforced by the Australian Energy Regulator (AER). AEMC also establishes NEM reliability standards, requiring that unserved energy per year for each region must not exceed 0.002% of the total energy consumed in that region.
In addition to rule-making, AEMC provides market development advice to governments, taking a long-term view to assure consumers of reliable and secure electricity and gas services at competitive prices. The National Electricity Rules, National Gas Rules, and Retail Energy Rules impact how market participants can operate in wholesale generation and retail sectors, providing specific rights for consumers and governing the economic regulation of electricity transmission and distribution services.
AEMC has also been working towards a net-zero energy system, establishing the Connecting Policy & Research Forum to connect with leading academics from Australia and worldwide. This forum aims to facilitate a transition to net-zero energy at the lowest cost to consumers, exploring critical aspects such as distribution evolution, tariffs, services, and regulations for a consumer-driven future.
AEMC's work is essential in shaping Australia's energy sector, ensuring reliable and secure energy supplies while promoting the long-term interests of consumers through rule-making and market development advice.
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The Australian Energy Regulator (AER)
The NEM is an arrangement in Australia's electricity sector that connects the electricity transmission grids of eastern and southern Australia to create a cross-state wholesale electricity market. It is one of the largest interconnected electricity systems in the world, covering around 40,000 km of transmission lines and cables, serving approximately 9 million customers. The NEM operates in New South Wales, the Australian Capital Territory, Queensland, South Australia, Victoria, and Tasmania.
The AER's functions mostly relate to energy markets in eastern and southern Australia, where the NEM operates. The AER's current key responsibilities include regulating the revenues and natural monopoly transmission and distribution sectors of the national electricity market, monitoring the wholesale electricity market, and enforcing electricity market rules. The AER board currently has five members who are statutory appointments, with two chosen by the Commonwealth and three chosen by the States and Territories.
The AER invites feedback and consultation from the public on various topics, such as the Market Liquidity Obligation exchange and community consultations. The AER also provides resources for energy consumers to navigate the energy market, including price comparison services and information on their rights as customers.
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The Energy Security Board (ESB)
The ESB, in collaboration with the Australian Energy Market Commission, Australian Energy Market Operator, and the Australian Energy Regulator, is undertaking a suite of reforms to ensure the appropriate tools are in place to support an orderly transition that minimises consumer costs and maintains reliability and security. The ESB provides whole-of-system oversight for energy security and reliability to drive better outcomes for consumers.
In 2018, the Australian Government, along with state and territory governments, tasked the ESB with providing advice on a long-term, fit-for-purpose market framework to support reliability that could apply from 2025. The Post-2025 Market Design project was established to oversee and coordinate this body of work, taking a holistic look at the changes required to ensure the NEM can meet the needs of electricity consumers in a future of diverse sources of non-dispatchable generation, demand response, storage, and distributed energy participation.
The ESB reports to the Energy National Cabinet Reform Committee (ENCRC), which is a ministerial forum for the Commonwealth, States, and Territories to work together in pursuit of national energy reforms. The ESB comprises the heads of the Australian Energy Market Commission, Australian Energy Regulator, and Australian Energy Market Operator, and is chaired by the head of the AEMC. Anthea Harris was appointed the inaugural Chief Executive of the ESB on 4 March 2022.
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Frequently asked questions
The Australian Energy Market Operator (AEMO) is responsible for the day-to-day operations of the National Electricity Market (NEM), which is Australia's middle electricity market.
The AEMO manages the operations of electricity and gas markets and systems across Australia, ensuring access to affordable, secure, and reliable energy. It also provides strategic forecasting and planning advice.
The AEMO works with the Australian Energy Regulator (AER) to enforce rules and maintain reliability standards. The AEMO also has strategic partnerships with institutions like the Bureau of Meteorology (BOM) and CSIRO to facilitate information sharing and discussion of energy issues.
