How the electricity market works

National Electricity Market

The National Electricity Market (NEM) is a wholesale electricity market in which generators (like Stanwell) sell electricity and retailers buy it to on-sell to consumers. There are more than 100 generators and retailers participating in the market, so it is highly competitive. 

All electricity generated is sold through the NEM. It is a wholesale energy market and prices fluctuate in response to supply and demand at any point in time. Rooftop solar installations are continuing to reduce total NEM demand, as this energy source is generated and consumed by energy users. Surplus energy from rooftop solar is also fed into the NEM as generation, further reducing demand from conventional grid connected generators.

The NEM incorporates one of the world’s longest interconnected power grids – stretching 5,000 kilometres from Port Douglas in Queensland to Port Lincoln in South Australia and across the Bass Strait to Tasmania. 

The electricity supply chain

The electricity spot market

The electricity spot market is a highly regulated, competitive market in which electricity supply and demand are instantaneously matched in real-time. Generators, like Stanwell, offer to supply the market with specific amounts of electricity at particular prices. From all the bids offered, the Australian Energy Market Operator (AEMO) calculates which generators will be deployed to produce electricity, based on demand at that time, with the cheapest generator (for the level of demand required) put into operation first. As a result, near zero cost renewable generation is therefore usually dispatched into the market first (when it is available), as they can competitively bid at lower prices. 

The spot price is currently calculated on a half-hourly basis with a move to a five minute basis to occur in September 2021. The NEM operation is designed to meet electricity demand in the most cost-efficient way for users.

As the NEM is currently oversupplied, spot market prices (on average) have been lower in 2019/20 than the previous year.  

The electricity contract market

In the electricity contract market, retailers can enter into contracts with generators (like Stanwell) to buy electricity at a fixed price. Approximately 85 per cent of our electricity revenue comes from contracts traded on the ASX or bilaterally between counterparties. These contracts protect both Stanwell and our customers, such as large commercial and industrial businesses, from volatility in the spot market.

As the operator of a large portfolio of generation assets, critical for energy reliability and system security, Stanwell offers tailored products to meet our customers’ specific requirements.