This review of the National Electricity Market (NEM) performance evaluates current market dynamics, competitive conditions and structural changes under the National Electricity Law and offers insights into the evolving NEM landscape. The report explores the challenges and drivers that shape market outcomes and assesses areas of the market that may benefit from policy or regulatory reform that would support ongoing effective competition and the efficient functioning of the market. It identifies a set of recommendations to inform new market design and support policymakers to deliver an effective energy transition.

The report presents a comprehensive analysis of all NEM regions comprising Victoria, New South Wales, South Australia, Queensland, the Australian Capital Territory and Tasmania. Notable changes across market dimensions, from pricing and market structure to participant behaviour and regional dynamics, are highlighted and market dynamics in the South Australian region are explored in depth.    

Key findings

• Wholesale electricity spot prices have fallen since late 2022 due to lower fuel costs, increased renewable generation and government intervention. 
• The market continued to experience significant volatility, driven largely by network and generator outages and variability in wind and solar output. 
• Intermittent renewable sources now contribute over 30% of total generation and are increasingly setting daytime pricing.
• Significant new investment in wind, solar, batteries, pumped hydro, gas-fired generation and the transmission network is needed over the next decade to replace aging coal and gas plants.
• The increase in renewables is driving a lessening of market concentration during the day while ownership of dispatchable generation remains concentrated and a few large participants are often needed to meet demand.
• Analysis of the South Australian market highlights a significant increase in intermittent renewable generation and falling levels of demand have driven an increase in the frequency of negative prices, particularly during periods of low demand. 

Recommendations

• Designing for the future: new market design needs a credible mechanism for new generation to recover its long-run marginal cost.
• On-time delivery of new projects: governments need to ensure new generation enters the market in a timely fashion.
• Encouraging competition: governments should factor in diversification when awarding dispatchable generation contracts or directly investing in generators.
• Risk management mechanisms need to be a continued focus: design of government schemes needs to ensure they incentivise contracting under current market design.