Is our energy supply in crisis? What’s the National Electricity Market? Can it be fixed?

We saw something unprecedented last week.

The Australian Energy Market Operator suspended the spot market in the National Energy Market for the first time in our country’s history.

We heard politicians talking about “load shedding”, “blackout warnings”, and “regulatory intervention” as winter was biting hard in some states.

It exposed serious shortcomings and fragilities in the system.

What’s going on? Where is it all heading?

The National Electricity Market

Firstly, let’s see what we’re talking about.

The National Electricity Market (NEM) is the electricity market on Australia’s eastern and south-eastern states.

It comprises five, physically connected regions: 

  • Queensland
  • New South Wales (which includes the ACT)
  • Victoria
  • Tasmania
  • South Australia

Western Australia and the Northern Territory are not connected to the market because they have their own.

National Electricity Market map
The National Electricity Market (NEM) supplies around 80 per cent of electricity consumed in Australia.(Source: Australian Energy Market Operator)

How does the system work?

Let’s say you turn an electrical appliance on. Power is instantly delivered from a power station to that appliance.

It feels like it happens easily and seamlessly. 

However, behind the scenes, a really complicated sequence of events has to take place in order for that power to be delivered to you.

See the graphic below.

AEMO Transport of electricity
The NEM supplies around 10.7 million customers(Source: Australian Energy Market Operator (AEMO), Factsheet: the National Electricity Market, December 2021)

The entities that generate electricity for the system use a range of energy sources and that “generation mix” is transforming rapidly.

According to the Australian Energy Market Operator (AEMO), if the current rate of development continues, the system may have enough renewable resources to meet 100 per cent of underlying consumer demand, in certain periods, by 2025.

It published the below graphic in December (as a snapshot in time). 

Generation of fuel type AEMO
These were the generation resources that made up the NEM in 2020-21(Source: Australian Energy Market Operator (AEMO), Factsheet: the National Electricity Market, December 2021)

The NEM is connected by 40,000 kilometres of transmission lines and cables.

And it became a single “market” in 1998.

That’s when the entire system was turned into one giant pool of wholesale energy supply.

Since then, the way power is generated and shared around the system has been subject to certain rules.

The rules remind market participants — such as energy producers and retailers — of their rights and responsibilities, and there are regulations protecting consumers from being charged too much for electricity.

And this is where things get interesting.

AEMO sits at the centre of the system

Think of the NEM as one big commodity exchange.

It’s like a single marketplace for energy producers, retailers and consumers.

Posted , updated 

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