National Electricity Market
The electricity industry is one of Australia’s largest. It provides energy for industry, businesses and households.
The National Electricity Market (NEM) is the wholesale electricity market for the electrically connected states and territories of eastern and southern Australia – Queensland, New South Wales, the Australian Capital Territory, Victoria, South Australia and Tasmania. The NEM generates around 200 terawatt hours of electricity annually, supplying around 80% of Australia’s electricity consumption.
The NEM began operating in 1998. For background on how the NEM was created, see The National Electricity Market: A case study in microeconomic reform.
Western Australia and the Northern Territory are not connected to the NEM. They have their own electricity systems and separate regulatory arrangements.
The NEM facilitates the exchange of electricity between generators and retailers. Retailers resell the electricity to businesses and households. Some large consumers also purchase electricity directly from the market. High voltage transmission lines transport electricity from generators to electricity distributors, who deliver it to homes and businesses on lower voltage ‘poles and wires’.
The NEM operates on one of the world’s longest interconnected power systems - from Port Douglas in Queensland to Port Lincoln in South Australia - a distance of around 5,000 kilometres.
The Australian Energy Market Operator (AEMO) operates the NEM. The NEM is an energy-only gross pool with mandatory participation. Generators sell all of their electricity through the market which matches supply to demand instantaneously. From the generators’ offers, the market determines the combination of generation to meet demand in the most cost-efficient way. AEMO then issues dispatch instructions to these generators.
The market determines a spot price every half-hour for each of the five regions of the NEM. AEMO settles the financial transactions for all of the electricity traded on the NEM on the basis of these spot prices. Generators and retailers often protect themselves from movements in the spot price by entering into hedge contracts.
For more information on the market and how it operates, see the AER’s State of the Energy Market reports.
We make and amend the National Electricity Rules that underpin the NEM. These include rules that:
govern the operation of the NEM – the competitive wholesale electricity market and the associated national electricity system
govern the economic regulation of the services provided by monopoly transmission and distribution networks
facilitate the provision of services to retail customers - see Energy retail markets
We conduct independent reviews and provide advice to governments on the development of electricity markets.
In both of these functions, we are required by law to have regard to the National Electricity Objective.
National Electricity Objective
The National Electricity Objective, as stated in the National Electricity Law, is:
to promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to – price, quality, safety, reliability, and security of supply of electricity; and the reliability, safety and security of the national electricity system.