agl.com.au

Explainer: the National Electricity Market

Photo of AGL Energy

AGL Energy

28 May 2019

5 minute read

Imagine 40,000 km of electricity lines and cables – more than three times the diameter of the Earth – spreading from Port Douglas in Far North Queensland down to Hobart in Tasmania and west into Port Lincoln in South Australia.

This is the physical part of the National Electricity Market (NEM). The NEM is also the wholesale market that delivers electricity from power generators through to residential and industrial consumers.

The NEM operates across five states: Queensland, New South Wales (including the Australian Capital Territory), Victoria, South Australia, and Tasmania. The states also form ‘price regions’, and are connected with each other through six high-voltage sets of lines called interconnectors.

Tasmania joined the NEM in 2006 with the introduction of the sixth interconnector, Basslink, which connects AGL’s Loy Yang power station in Victoria to the George Town substation in Tasmania. At 290km, it is the second-longest submarine power cable in the world (after NorNed, which links Norway and the Netherlands).

The National Electricity Market operates in Queensland, Victoria, NSW (including the ACT), SA, and Tasmania.

The National Electricity Rules – and the other states

The NEM is governed by the National Electricity Rules (NER), which have the force of laws in the states the NEM operates in.

Western Australia and the Northern Territory are not currently part of the NEM. However, the NT adopted parts of the NER in 2016, and WA is considering adopting elements of the NER too.

According to the Australian Energy Market Commission, (AEMC), the National Electricity Rules exist so that market participants understand their rights and responsibilities, and there is appropriate regulation so that consumers do not pay more than necessary for their electricity*.

 

The spot market

Currently, electricity cannot be easily stored in the quantities a national market would require. Because of this, the NEM operates as a ‘spot’ market to ensure enough supply is available to manage the current demand for electricity.

This price is determined by the Australian Energy Market Operator (AEMO) on the ‘Spot Market’ based on bids from power generators to meet demand. Every generator in the NEM offers to supply the market with a specified amount of power for a specified price for a specified time period.

The spot market was designed to prioritise the lowest cost electricity generation per megawatt hour (MWh) first – this is covered in more detail in our article ‘Demystifying the spot market’

 

Snapshot: Roles and Responsibilities in the NEM

  • AEMC: The Australian Energy Market Commission is the rule maker for Australian electricity and gas markets – including the NEM.
  • AEMO: The Australian Energy Market Operator is responsible for operating the National Energy Market.
  • Market participants: There are over 300 registered participants in the NEM, including market generators, transmission network service providers, distribution network service providers, and market customers.
  • NER: The National Energy Rules govern the operation of the National Energy Market.
  • Spot Market: Electricity from utility-scale generators, including AGL’s generators, is sold on the spot market. All electricity supplied to the spot market to meet demand, is sold at the ‘spot price’.