Australia’s National Electricity Market (NEM) is known for its wild price swings—and for good reason. With prices spiking as high as $17,500/MWh and settling every five minutes, the NEM is one of the most volatile electricity markets in the world.

This volatility isn’t just a by-product of supply and demand—it’s baked into the market structure. And for energy storage providers, particularly battery operators, these extreme price events can make or break the business case.

In this article, I’ll explain why the NEM is so volatile, how this benefits batteries, and why transmission constraints—not demand—are often the real trigger behind high prices.

The NEM’s Unique Market Structure

Let’s start with the basics.

The NEM is an energy-only market, meaning generators are paid only for the electricity they sell into the grid—not for their availability or capacity. This is different from capacity markets used overseas, where generators are paid for being on standby, which helps smooth out prices.

What makes the NEM even more volatile is its five-minute settlement mechanism. Every five minutes, the market clears, and generators are paid the spot price for that interval. That’s twelve different prices every hour, each with the potential to swing wildly.

On top of that, the price cap is very high—currently $17,500/MWh—and there’s no floor for how low prices can drop, with negative prices bottoming out at –$1,000/MWh. All of this creates a market environment where prices can change dramatically in just minutes.

Batteries: Thriving on Volatility

For batteries, this market volatility is not a bug—it’s a feature.

Because batteries can respond quickly, they’re ideally suited to capitalise on high-price intervals. In fact, recent data shows that batteries in New South Wales earned over 48% of their revenues from energy prices above $3,000/MWh in 2024–25.

That’s an extraordinary concentration of earnings in just a few moments. It means that for battery operators, spotting and seizing those high-price windows is critical to profitability.

And the trend isn’t isolated. Across the NEM, 2024 saw battery revenues increase by 45% compared to the previous year, with the majority of energy trading profits tied to extreme price spikes.

What’s Causing These Price Spikes?

You might assume that extreme prices occur when demand is high or when generation is low. But that’s not the full story.

In reality, price spikes in the NEM are more closely linked to transmission constraints—especially on interconnectors between states and key lines within states.

From January 2022 to April 2025, each NEM region experienced interconnector import constraints 23% to 32% of the time. But when prices surged past $3,000/MWh, those same regions were constrained up to 68% of the time.

In other words, when extreme prices happen, it’s often because a state can’t import power from its neighbours—not because demand has suddenly surged.

The NSW Case: A Closer Look

Let’s zoom in on New South Wales to see how this plays out in practice.

There’s a key set of transmission lines connecting southwest NSW to Sydney. When one or more of these lines are offline—due to maintenance, faults, or other constraints—energy from cheaper sources in the southwest can’t make it to Sydney.

This bottleneck drives prices up in NSW.

And because NSW then leans on Queensland to import electricity, prices in Queensland also rise. In fact, between January 2024 and April 2025:

71% of NSW’s potential battery revenue from extreme prices occurred when at least one of these southwest lines was offline.

In Queensland, that figure was even higher—80% of extreme-price battery revenue tied to outages on those same lines.

This shows just how powerful intra-state constraints can be—not just inter-state ones.

Why Transmission Dynamics Matter for Battery Operators

For battery operators and developers, this has major implications.

Most energy models tend to focus on supply and demand fundamentals: when is peak demand? What’s the weather forecast? How much solar is online?

But in the NEM, transmission constraints are the key to unlocking extreme price opportunities. If you’re not watching the transmission network, you’re flying blind.

A recent market analysis showed that a battery in NSW that was constrained off for just 15 minutes during a price spike missed out on $3,800/MW of potential revenue. That’s a huge loss for a tiny window of inaction.

What Can Operators Do?

If you operate a battery or other fast-responding asset, here’s what you can do to better navigate—and profit from—volatility in the NEM:

• Monitor constraint data
  AEMO publishes constraint equations in real time. By keeping an eye on line outages and binding constraints, operators can anticipate high-price events.
• Co-optimise bids with transmission insights
  Instead of blindly bidding at short-run marginal cost (SRMC), savvy operators adjust bids based on expected constraints. During tight conditions, withholding capacity can drive prices up—legally and profitably.
• Site batteries in high-volatility regions
  Developers planning new battery sites should consider areas prone to price separation due to transmission bottlenecks. These “energy islands” can be extremely lucrative.
• Model price volatility accurately
  Forecasting models should reflect the reality of the NEM—high caps, fast settlements, and network constraints. Unrealistic assumptions (e.g., all bids at SRMC) will understate revenue potential.

The Developer’s Perspective: Building in the Right Place

This isn’t just a concern for battery operators—it’s equally important for asset developers.

If you’re planning a new peaking plant, battery, or hybrid solar-plus-storage project, location matters more than ever.

Regions with known or emerging transmission issues—like parts of NSW, QLD, and even VIC—offer a more volatile, and therefore more profitable, environment for flexible assets.

On the other hand, oversupplied or highly interconnected areas may offer lower average volatility—and lower returns for assets that rely on price spikes.

Looking Ahead

The NEM is evolving. With more renewables, more storage, and new transmission projects like EnergyConnect underway, the shape of volatility will change.

But one thing is clear: volatility is here to stay—at least in the medium term.

Until a formal capacity mechanism is introduced (if ever), and while major transmission gaps remain, fast-responding assets will continue to profit from extreme pricing events. And those profits will be tightly linked to the shape and reliability of the transmission network.