Most electricity in Australia is generated, bought, sold and transported in markets that need to match supply and demand in real-time. The National Electricity Market (NEM) fills this role for the east coast and southern states.

What is the NEM?

The NEM is one of the largest interconnected electricity systems in the world. It covers around 40,000 km of transmission lines and cables, supplying around nine million customers.

The NEM is a wholesale market through which generators and retailers trade electricity in Australia. It interconnects the six eastern and southern states and territories and delivers around 80% of all electricity consumption in Australia.

Western Australia and the Northern Territory are not connected to the NEM. They have their own electricity systems and separate regulatory arrangements.

How does the NEM work?

The NEM facilitates the exchange of electricity between generators and retailers. Retailers resell the electricity to businesses and households. High voltage transmission lines transport the electricity from the generators to electricity distributors, who deliver it to homes and businesses on lower voltage ‘poles and wires’.

The wholesale market is where generators sell electricity and retailers buy it to on-sell to you. There are lots of generators and retailers participating, so it’s highly competitive. The wholesale market operates around a common pool, or spot market, for wholesale trading in physical electricity. This process determines an electricity spot price which reflects physical supply and demand across the NEM. This spot price is an important price signal for investors.

Financial markets sit alongside the wholesale market and involve retailers and generators entering into contracts to buy and sell electricity at an agreed price. The financial markets enable retailers to manage the risk of volatile wholesale prices for their customers.

Distribution Regions

The Distribution Network (poles and wires) of the NEM is divided into 13 distribution zones, each a monopoly and the regulator determines the rate of return the asset owners can achieve (both privately owned and publicly owned).

The NEM is a wholesale market through which generators and retailers trade electricity in Australia. It interconnects the six eastern and southern states and territories and delivers around 80% of all electricity consumption in Australia.

Western Australia and the Northern Territory are not connected to the NEM. They have their own electricity systems and separate regulatory arrangements.

National Electricty Market - regions

Source: Information contained within this article has been provided by the Australian Energy Market Operator (AEMO).

Each distribution region has different rules regarding how much solar you can connect to your home. You can read about these rules here.

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