National Electricity Market (NEM)

Most electricity in Australia is generated, bought, sold and transported in markets that need to match supply and demand in real time. The National Electricity Market (NEM) fills this role for the east coast and southern states.

What is the NEM?

The National Electricity Market (NEM) is one of the largest interconnected electricity systems in the world. It covers around 40,000 km of transmission lines and cables, supplying around 9 million customers.

The NEM is a wholesale market through which generators and retailers trade electricity in Australia. It interconnects the six eastern and southern states and territories and delivers around 80% of all electricity consumption in Australia.

Western Australia and the Northern Territory are not connected to the NEM. They have their own electricity systems and separate regulatory arrangements.

How does it work?

The NEM facilitates the exchange of electricity between generators and retailers. Retailers resell the electricity to businesses and households. High voltage transmission lines transport the electricity from the generators to electricity distributors, who deliver it to homes and businesses on lower voltage ‘poles and wires’.

The wholesale market is where generators sell electricity and retailers buy it to on-sell to you. There are lots of generators and retailers participating, so it’s highly competitive. The wholesale market operates around a common pool, or spot market, for wholesale trading in physical electricity. This process determines an electricity spot price which reflects physical supply and demand across the NEM. This spot price is an important price signal for investors.

Financial markets sit alongside the wholesale market and involve retailers and generators entering into contracts to buy and sell electricity at an agreed price. The financial markets enable retailers to manage the risk of volatile wholesale prices for their customers. 

Who manages the NEM?

The COAG Energy Council is the key decision maker with policy and governance responsibility. The Australian Energy Market Commission (AEMC) develops the rules by which the market must operate. The Australian Energy Market Operator (AEMO) handles the day-to-day operations of the electricity and gas markets. The Australian Energy Regulator (AER) enforces the rules and makes judgements on the regulatory proposals of monopoly network operators.

The Energy Security Board (ESB) has been established by the COAG Energy Council to coordinate the implementation of the reform blueprint produced by Australia's Chief Scientist. Part of the role is to report to the Energy Council on the health of the NEM. The health report will track the performance of the system, the risks it faces, opportunities for improvement and affordability issues.

Is the NEM changing?

The NEM needs to be modernised to accommodate and respond to changes in electricity generation, emerging technologies, such as batteries, and shifting consumer preferences. The Government’s long-term energy policies are being informed by recommendations in the Independent Review into the Future Security of the National Electricity Market, which provides a blueprint for ensuring Australia’s energy systems remain affordable, reliable, sustainable and secure while transitioning to low emission forms of generation.

More information