What the National Electricity Market actually is

The National Electricity Market is the wholesale spot market where generators sell electricity and retailers buy it, run by AEMO — the Australian Energy Market Operator. It connects six jurisdictions along Australia’s eastern and southern coast:

Every dispatch interval (5 minutes, 288 times a day), generators submit bids for how much electricity they’ll supply at what price. AEMO dispatches the cheapest bids first, working up the stack until supply matches demand for that interval — the price of the last (most expensive) bid needed clears the market and becomes the spot price for every generator and every buyer in that region for that interval.

This is why spot prices swing so much more than your retail rate ever does — they can go negative (generators effectively paying to keep running rather than shut down) when there’s too much low-cost supply (typically solar-flooded midday), and spike toward the market price cap (in the thousands of dollars per MWh) during extreme demand, like a heatwave evening with low wind and generator outages.

Your retail tariff isn’t the spot price passed straight through — retailers buy at the volatile 5-minute spot price but sell to you at a fixed rate, absorbing that volatility risk (often hedged with financial contracts) in exchange for a margin. Roughly, the chain looks like:

1. Generator bids into the NEM → spot price set every 5 minutes ($/MWh)
2. Retailer buys wholesale power at the fluctuating spot price, and pays the distributor a regulated network fee to deliver it
3. Retailer bundles wholesale cost + network fee + hedging costs + margin into a fixed c/kWh tariff
4. You pay that fixed tariff, regardless of what the spot price was at the moment you used the power

This is also why rising renewable penetration and more frequent negative midday prices matter to you even though your rate is fixed: they reshape the average cost retailers pay over a year, which eventually flows into how tariffs are priced at your next contract renewal.

The same 5-minute price swings that make wholesale prices volatile are the direct cause of low (or negative) midday solar feed-in tariffs — see the Solar & Feed-in Tariffs page for how that connection works.