The National Electricity Market wasn’t made for a renewable energy future. Here’s how to fix it

By Vikki McLeod, Marcus Foth, Queensland University of Technology

Rooftop solar is Australia’s cheapest source of electricity. The consumer can get electricity from rooftop solar at less than a fifth of the average cost per kwh of buying it from a retailer.

Unsurprisingly, rooftop solar output is growing fast. In 2022, one-in-three homes had solar panels. Total rooftop solar capacity exceeded 30 gigawatts, compared to the remaining 21GW of coal generation.

Rooftop solar photovoltaic (PV) systems will soon supply half of our electricity demand. At times of the day, they already supply close to 100% of electricity demand and in some regions can briefly meet all demand.

This means renewable energy is displacing the electricity traded through the wholesale market and supplied via the transmission system. The National Electricity Market (NEM) is the wholesale market where large generators and retailers buy and sell electricity to supply the eastern and south-eastern states. It was never designed to cope with large amounts of renewable energy feeding into the grid at large, medium and small scales.

The market’s design doesn’t allow for harnessing the full economic and technical potential of the millions of consumer-owned generators, known as distributed energy resources (DERs). Comprehensive market reforms are urgently needed to achieve an energy transition at least cost to energy users.

What are the challenges of reform?

The National Electricity Market has operated largely in its current form since the 1990s. It was designed for large fossil-fuelled power stations, but many of these are on the way out.

Millions of rooftop solar systems are now connected to the grid. The market needs to change to a system that can manage and co-ordinate these small renewable energy generators.

To minimise disruption, a reformed market has to be able to accommodate and value the electricity and power system services that these millions of distributed energy resources can provide. They offer flexibility and can help balance supply and demand, thus improving grid stability.

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