The National Electricity Market (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.
The NEM spot pool market is operated by AEMO and operates across the eastern states of the mainland, and includes the state grids of (QLD), New South Wales (NSW), Victoria (VIC) and South Australia (SA). Tasmania (TAS) is connected to the other NEM regions via an undersea inter-connector to Victoria. Futures and options contracts are listed on the 4 major regions (VIC, SA, QLD and NSW).
The Wholesale Electricity Market WEM)
The Wholesale Electricity Market (WEM) in WA is part of the South West Interconnected System of Western Australia (SWIS) with approximately 5,798MW of registered generation capacity.
The Market Operator
The Australian Energy Market Operator (AEMO) is responsible for operating both the NEM and the (WEM) markets in accordance with the Wholesale Electricity Market Rules and the related market procedures.
The (AEMC) Australian energy market commission has two roles in relation to the National Electricity Market – as rule maker and as a provider of advice to Ministers on how best to develop energy markets over time. The AEMC actively considers market development when it considers rule change proposals, policy advice and energy market reviews. These rules are binding on the Australian energy market and enforced by the Australian Energy Regulator.
The (AER) Australian energy regulator is the regulator of the wholesale electricity and gas markets in Australia. It is part of the Australian Competition and Consumer Commission and enforces the rules established by the Australian Energy Market Commission.
The Supply Chain
Though straightforward in theory, the electricity supply chain is a complex platform.
Electricity generators create power from either fossil fuels (coal or gas) or renewable energy (solar, wind, hydro or other sources). Some generation is bulk for distributed use, other is small generation for their own use or to be exported (such as residential solar panels).
Distributors then purchase and distribute the power across transmission networks. In some areas outside the NEM, customers must purchase directly from the distributor.
Retailers then purchase and on-sell power to customers.
The commodity is delivered by network infrastructure in each state.
New Energy Security Board put in place to report to COAG.
On advice from the Finkel Review (an independent review of the national electricity market led by Australia’s Chief Scientist Dr Alan Finkel), the government have set up a new energy security board which is made up of AEMO, the market operator and AER, the regulator and AEMC the rule maker. This security board will report directly to COAG and the Government.