Most of Australia's electricity is generated, traded, and delivered through markets that need to balance supply and demand in real-time. The National Electricity Market (NEM) serves this function for the eastern and southern states.
National Electricity Market: Overview
The NEM is one of the world's largest interconnected electricity systems, spanning around 40,000 km of transmission lines and cables and supplying approximately 9 million customers. It is a wholesale market where generators and retailers trade electricity, interconnecting the six eastern and southern states and territories, delivering around 80% of all electricity consumed in Australia.
Western Australia and the Northern Territory are not part of the NEM. They operate their own electricity systems with separate regulatory frameworks.
How the NEM Functions?
The NEM facilitates the exchange of electricity between generators and retailers, who resell it to businesses and households. High voltage transmission lines carry electricity from generators to distributors, who deliver it to homes and businesses through lower voltage networks.
In the wholesale market, generators sell electricity and retailers purchase it for resale. This highly competitive market operates around a common pool, or spot market, which determines an electricity spot price reflecting real-time supply and demand across the NEM. This spot price serves as a crucial signal for investors.
Financial markets complement the wholesale market, allowing retailers and generators to enter into contracts to buy and sell electricity at agreed prices. These financial markets help retailers manage the risk of volatile wholesale prices for their customers.
NEM Management
Energy Ministers hold the primary decision-making authority for policy and governance. The Australian Energy Market Commission (AEMC) develops the rules for market operation, while the Australian Energy Market Operator (AEMO) manages the day-to-day operations of electricity and gas markets. The Australian Energy Regulator (AER) enforces the rules and assesses the regulatory proposals of monopoly network operators.
The Energy Security Board (ESB) was created by the former COAG Energy Council to implement a reform blueprint from Australia's Chief Scientist. The ESB reports to the Energy Council on the health of the NEM, tracking system performance, identifying risks, and highlighting opportunities for improvement and affordability issues.
NEM Evolution
The NEM is undergoing modernization to adapt to changes in electricity generation, emerging technologies like solar batteries, and evolving consumer preferences. Government policies are being shaped by recommendations from the Australian Competition and Consumer Commission (ACCC) and reports on the future security of the NEM. These recommendations aim to ensure Australia's energy systems remain affordable, reliable, sustainable, and secure while transitioning to low-emission generation sources.
Post-2025 Market Reforms
In 2018, the Australian Government, together with state and territory governments, tasked the Energy Security Board with advising on a long-term market framework to support reliability from 2025 onwards. The Post-2025 Market Design project was launched to oversee this work, addressing the needs of electricity consumers in a future with diverse, non - dispatchable generation sources, demand response, storage, and distributed energy participation.
Further information is at Post-2025 Project Microsite
ACCC Retail Electricity Pricing Inquiry
On 27 March 2017, the Treasurer directed the ACCC to conduct a public inquiry into the supply and competitiveness of retail electricity prices in the NEM. The final report, released on 11 July 2018, identified the causes of high electricity prices and made 56 recommendations to improve affordability for consumers and businesses.
The government continues to collaborate with states and territories to implement these recommendations, including the ACCC-recommended default offer price safety net. The ACCC is also tasked with monitoring prices, profits, and margins in the NEM and reporting to the government every six months until the inquiry concludes on 31 August 2025.
Frequently Asked Questions
What is the National Electricity Market (NEM)?
The National Electricity Market (NEM) is a wholesale market for electricity that facilitates the exchange of electricity between generators and retailers. It serves the eastern and southern states of Australia, spanning around 40,000 km of transmission lines and cables and supplying electricity to approximately 9 million customers. The NEM interconnects six states and territories, delivering around 80% of all electricity consumed in Australia.
How does the NEM function?
Who manages and regulates the NEM?
What are the key reforms and changes happening in the NEM?
What was the outcome of the ACCC Retail Electricity Pricing Inquiry?
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