The 'NEM' is mentioned pretty frequently in the news. But what is it, and what is Tasmania's role in it?
Generators produce electricity from renewable sources (hydropower, wind, solar) and non-renewable (coal and gas) sources.
Transmission and distribution maintain the poles and wires that take the electricity from the generators to your homes and businesses.
Retailers purchase electricity from generators to meet the demand of their customers.
The flow of electricity then looks something like this:
So let’s talk about the market. It is called the National Electricity Market, or ‘NEM’, and is one of the largest interconnected power systems in the world. Generators, transmission and distribution, and retailers all work together to meet the electricity needs of over 10.7 million customers, with the Australian Energy Market Operator (AEMO) overseeing everything.
The NEM generates around 200 terawatt hours of energy every year, which is moved around by the transmission that carries electricity to your homes and businesses, and through ‘interconnectors’. Interconnectors transfer energy between states within the NEM.
In Tasmania, we have one interconnector with Victoria, Basslink, and there is another 1500 megawatt interconnector proposed, Marinus Link.
Tasmania has the greatest opportunity in the energy market, which is changing at a fast rate. Our natural advantage of renewable energy potential can reshape Australia’s clean energy future.
The proposed 1500 megawatt Marinus Link interconnector will open greater two-way energy flow between Tasmania and Victoria. This gives us more opportunity to take advantage of the NEM by selling surplus renewable energy Powered by Tasmania. It also gives Tasmania more energy security, so we always have electricity exactly when we need it.
By extending our renewable energy to mainland Australia, we’re playing our part to address climate change, while reaping the benefits of lower power prices, greater economic returns to our state, and promoting jobs and investment for our future.
Electricity to meet Australia’s large demand can’t be stored easily, so the market works as a ‘pool’, which is essentially a set of contracts and procedures managed by AEMO. You might hear it referred to as the ‘spot market’, which ensures power supply and demand are matched instantaneously. You turn on your kettle at home and power is instantly transmitted from a power generation source to your appliance.
Generators offer bids to supply the market with a certain amount of electricity for a certain price. AEMO then decides which generators will be deployed to meet the current demand, with the cheapest generator put into operation first. The price of electricity is determined by the bids by generators and how much demand there is. Spare generation is still there in reserve in case demand is greater than expected.
This process is done every five minutes. So every day and night, generators and retailers are buying and selling electricity in the market to supply their customers.
To read more about how this works, check out this fact sheet from AEMO by clicking here.