Bite-sized report: Preparing the NEM for post-2030

The Australian Energy Regulator’s (AER) latest review of the National Electricity Market (NEM) examines market dynamics, competition and structural changes under the National Electricity Law.

It found that wholesale spot prices fell since late 2022 due to lower fuel costs, increased renewable generation, and government intervention.

However, high price events persist due to outages, variable renewable output, and high demand.

It’s the first time the regulator has exercised its new contract market monitoring powers and identifies a critical shift: over 30% of generation now comes from intermittent renewables, which is increasingly influencing daytime pricing.

However, new investments in wind, solar, batteries, hydro, gas, and transmission are urgently needed to replace aging coal and gas plants.

Overall, prices still remain above pre-2022 levels due to fuel costs, congestion, and bidding strategies.

But in South Australia, more intermittent renewable generation and low demand have led to more frequent negative prices.

Daytime market concentration is easing with more renewables, but dispatchable generation remains dominated by a few large players. For smaller retailers, limited contract market trading and high spot market volatility has increased costs and risk.

Future market design

The AER recommends market reforms to ensure:

• Revenues cover costs,
• New tech is developed that can address variability and demand changes,
• Volatility risk is managed, and
• Competition is encouraged in energy, firming, and system services.

Governments should facilitate on-time generation projects and manage the risks associated with the closure of aging coal and gas plants, fuel price spikes, and unplanned outages.

To encourage competition, there should be more support for diversification in dispatchable generation contracts and direct investments.

Finally, government programs should support project risk reduction while maintaining market competition and incentives for hedging and risk management.

Have your say

In parallel with the AER review, Canberra recently initiated a review of the NEM wholesale market settings, to promote investment in firmed renewable energy generation and storage capacity after conclusion of the Capacity Investment Scheme tenders in 2027.

Building on the 1990s Hilmer Reforms, which broke up state-owned utilities to shift investment risks onto private investors, the government is looking to boost long-term investment to address the closure of aging power stations and support renewables.

The goal is for firmed renewable generation and storage to soon dominate the market, with consumers as producers of clean energy.

The review is out for consultation, and the final recommendations will be released in Q3 of 2025.

The next stage is a targeted consultation with industry and consumer fora in February and March.

It’s asking:

• How can we ensure that investment in new generation, storage, and firming capacity happens when and where it’s needed to minimise costs for consumers?
• How do we enable consumers - ranging from large businesses to households with rooftop solar - to benefit from and contribute to the market?
• How do we enable greater levels of competition and facilitate entry of new infrastructure before the retirement of older infrastructure?

The independent expert panel is led by Associate Professor Tim Nelson and includes members Paula Conboy, Ava Hancock, and Philip Hirschhorn. It is supported by the Department of Climate Change, Energy, the Environment and Water.

Energy Insights spoke with Nelson to find out more.

He said it’s all about taking a long-term view to ensure that Australia’s electricity system delivers secure, affordable, reliable and sustainable energy for generations to come.

“Over the coming months, we want to hear from a wide range of voices including market bodies, investors, energy companies, and, most importantly, consumers.”

Conboy said: “Your contributions will be key to forming the pathway to future market settings that deliver reliable, competitively priced and secure electricity services in the long term interest of consumers while promoting investment in firmed, renewable generation and storage capacity.”

Nelson added: “This is not just about the technical and economic mechanics of the market - it is about shaping a system that works for everyone. The energy transition must be just and equitable, ensuring that no community is left behind and that the benefits of clean energy are shared widely.

“This is your energy system, and your voice is vital in shaping its future,” Nelson said.