How is the National Electricity Market regulated?
How is the National Electricity Market regulated?
Energy is an essential service, which is why laws and safeguards are in place to make sure your access to it is reliable, secure and affordable.
Most Australians get their power from the National Electricity Market (NEM). Covering the six eastern and southern states and territories, the NEM delivers roughly 80 per cent of all electricity consumption in Australia. (The NEM doesn’t operate in Western Australia or the Northern Territory, which have their own electricity systems.)
The NEM is one of the largest interconnected electricity systems in the world. It’s a highly competitive market, with prices fluctuating in real-time in response to supply and demand – but it’s also highly regulated.
It’s governed by a number of regulatory authorities and market bodies, each with their own functions and obligations as set out in the National Electricity Laws (NEL). These bodies include:
Energy and Climate Change Ministerial Council
The Energy and Climate Change Ministerial Council (ECMC) is a forum for energy ministers from the Commonwealth and state and territory governments, as well as New Zealand, to work together on priority issues of national significance, and to identify reforms required for the energy and climate change sectors.
The ECMC was established by the National Cabinet in September 2022. It replaced the Energy National Cabinet Reform Committee, which itself replaced the COAG Energy Council.
The ECMC has oversight of the following three market bodies responsible for the operation and regulation of the NEM.
Australian Energy Market Commission
The AEMC is the rule-maker for Australia’s energy markets. It’s responsible for making and amending the regulatory instruments that govern the national energy markets.
This includes the National Electricity Rules (NER). These Rules provide the regulatory framework and processes for generators and retailers to participate in the wholesale market; the economic regulation of electricity transmission and distribution networks; and the way in which the Australian Energy Market Operator (AEMO) manages system security.
The AEMC is also responsible for the National Energy Retail Rules (NERR). These Rules set out the consumer protection measures and model contract terms and conditions that govern the relationships between consumers, retailers and distributors, including the right of customers to choose between competing retailers. (Victoria hasn’t adopted the NERL, but similar legislation, including the Energy Retail Code, applies there.)
Crucially, the AEMC can’t propose its own rule changes. Instead, it manages the rule change process, deciding on rule change requests made by others.
The AEMC also monitors and reports on energy market performance and the level of competition in energy retail markets.
Australian Energy Regulator
The Australian Energy Regulator (AER) polices the system and enforces the rules set by the AEMC.
This includes continuous monitoring of market prices and network constraints and outages, regular audits and – where a risk has been identified – targeted compliance reviews.
When national energy laws are breached, the AER can respond by issuing an infringement notice (similar to an on-the-spot fine); seeking a court order; initiating civil proceedings; or even revoking a retailer’s right to sell energy.
In the interest of transparency, the AER also publishes enforcement outcomes and compliance reports online.
If you think your energy retailer might have violated the National Energy Retail Rules, you can take your concerns to your local energy ombudsman for a free, fair and independent dispute resolution.
Australian Energy Market Operator
The Australian Energy Market Operator (AEMO) manages the day-to-day operation of the NEM, as well as the Wholesale Electricity Market (WEM), which operates in Western Australia.
The NEM is a wholesale electricity market. Generators sell electricity into the market, and this electricity is then bought by retailers (who on-sell it to consumers) or large-scale customers.
Generators offer – or ‘bid’ – to supply electricity to the market at a particular price for a five-minute period. These offers are made up to a day and a half before the power is needed. It’s AEMO that accepts these offers, starting with the lowest-priced generator first, and continues to accept offers until enough electricity has been secured to meet the anticipated demand. The highest offer that AEMO accepts is then set as the dispatch price for that period.
There is sometimes an unexpected need for more or less supply as the dispatch time draws closer. When that happens, generators can submit a new offer, called a rebid, which is also managed by AEMO.
Energy Advisory Panel
In 2023, federal, state and territory energy ministers voted unanimously to disband the Energy Security Board (ESB), which was tasked with providing system oversight, and replace it with the Energy Advisory Panel (EAP).
The EAP includes the heads of the AEMO, AEMC and AER, as well as the energy commissioner of the Australian Competition and Consumer Commission (ACCC) as an observer.
It’s tasked with coordinating advice for governments from the country’s main energy market bodies, to ensure the continued security, reliability and affordability of Australia’s energy system as it evolves.
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