National Electricity Market (NEM) – How does it operate?

The National Electricity Market, or NEM, is an integral part of Australia’s energy landscape. It is both a wholesale electricity market and the physical power system. Stretching over some 40,000 kilometers of transmission lines and cables, the NEM supplies almost 200 terawatt-hours of electricity yearly to around 9 million consumers in six regions: Queensland, New South Wales – which includes the Australian Capital Territory as well – Victoria, South Australia, and Tasmania. Western Australia and the Northern Territory remain unconnected, however.

Historical background and Organization

The NEM began trading in December 1998 as a wholesale spot market with the main purpose of encouraging competition amongst electricity generators and improving reliability of supply. At that time, five regional market jurisdictions were interlinked allowing for a better allocation of resources and ensuring competition by energy providers.
At the end of December 2017, NEM had total electricity-generating capacity standing at approximately 54,421 megawatts (MW). During the 2016–17 financial year, the market reported $16.6 billion traded. Its strategic reserve for both demand and generation resources stood at more than 1,000 MW in 2017-18 and would maintain the system against peak demands or emergencies.

Operational Mechanisms

The NEM runs on a highly advanced structure that includes a ‘pool’ or spot market. Here, all generators combine their electricity outputs and are scheduled at intervals of five minutes to align with the consumers’ needs. This is done through the management of AEMO by utilizing highly sophisticated systems, which send signals to generators regarding how much energy they should produce. This kind of dynamic operation ensures that electricity production goes hand-in-hand with real-time consumer demand while keeping ready spare capacity for emergencies.
This is not just a physical commodity being moved over the NEM, but rather it is governed by a sequence of rules and procedures that have been established under the National Electricity Law and the National Electricity Rules.

Infrastructure and Market Participants

The NEM infrastructure consists of state-owned and private assets, all managed by various industry stakeholders. AEMO’s work is not limited to wholesale activities; it also operates retail electricity markets that support the wholesale sector.

Generation Data and Forecasting

AEMO publishes aggregate generation data for the NEM. This data comprises the following:
  • Scheduled and semi-scheduled existing and committed generation capacities over the next ten years.
  • Changes and controls on existing generation infrastructure.
  • Proposed developments in the electricity sector.
  • Available statistics for non-scheduled generation.
All this transparency allows the stakeholder to better plan and make investment decisions, hence encouraging a market that is well-informed.

Connecting to the NEM

AEMO is an advisory body to the new energy facilities that may like to connect to the NEM. It undertakes negotiation of performance standards as well as the review of simulation models of the power system plants. In Victoria, AEMO administers connection processes delegated to connecting transmission network service providers by other states. Such a holistic approach results in stable and secure performance throughout the connected grid.

Loss Factors and Regional Boundaries

Electricity transmission is not without losses; about 10% of the total electricity transported is lost because of electrical resistance and heating of conductors. In order to overcome this, energy losses have to be accounted for at all stages of electricity production and transport. This means that more electricity than indicated by simple demand forecasts has to be produced to meet demand effectively.
The loss factors are calculated and set every year to enable scheduling and settlement processes in NEM in an efficient way. Loss factors are important factors for the market participants; these are directly related to electricity prices and the whole market efficiency.

The National Electricity Market is an integral framework to Australia’s electricity supply system, allowing efficient trading in energy and providing competition between producers. Highly developed operational mechanisms are used to guarantee the generation and distribution of electricity meets consumers’ needs with a very high degree of system reliability. The NEM will be a major player in the support of new technologies and renewable sources of energy as the energy landscape changes over the coming years.

We design and manufacture high-quality switchboards. Contact us today to discuss your requirements and get started!
Tags: