Energy Education: Energy Generation Mix in the National Electricity Market (NEM)

Hi, my name is Charlie Davis and I’m an Energy Market Analyst at Shell Energy.

Welcome to our Energy Education video series, where we deep dive into Australia’s energy market and grid. Today, I’ll be answering your questions about the mix of energy sources in the National Electricity Market, otherwise known as the NEM.

Can you briefly explain what the National Electricity Market is?

The NEM is the power grid that connects Queensland, New South Wales (which includes the ACT), Victoria, South Australia, and Tasmania.

It refers to the physical electricity generators and transmission poles and wires, as well as the financial markets that facilitate the supply of electricity to end consumers.

Now historically, the NEM has relied heavily on coal-fired power generation, with some gas and hydroelectricity, to power Australian homes and businesses.

However, over time this has evolved to integrate a more diverse mix of energy sources.

How is the energy mix changing in the NEM?

As Australia’s coal fleet approaches its end of life, and as society demands lower emissions technologies, the NEM has seen an influx in energy generation from renewable sources like wind and solar power.

However, wind and solar are both intermittent generation sources which can fluctuate with the weather. This means that in order to keep energy supply and demand in balance, they must be paired with a firming generation source, such as batteries, hydroelectricity, or gas-fired generation.

This is why you often hear about gas as a transitionary fuel necessary for the energy transition.

What impact do household batteries and solar panels have on the energy mix?

Small-scale rooftop solar generation makes up a significant contribution to Australia’s energy supply.

And with rooftop solar expected to continue growing, there is a growing need to store excess solar generation produced in the middle of the day when energy demand is typically low, to be used over higher demand periods – typically during the morning and evenings.

What challenges lie ahead as Australia decarbonises its power grid?

Australia’s transmission network was built to connect large, centralised coal-fired power stations to sparsely populated regions and demand centres. As a result, the NEM evolved into a long, narrow grid stretching from northern Queensland to southern Tasmania and westward to South Australia.

With more decentralised wind and solar projects entering the market and being built in remote locations, a key challenge is building new transmission infrastructure that enables energy from these generators to connect to the rest of the network without being constrained by the physical limitations of the existing transmission grid.

From this perspective, it’s critically important to carefully plan and coordinate the build-out of new transmission and generation assets to maintain system security and reliability.

What do you think will be most important to ensuring a reliable and sustainable future for the NEM?

I think a few key strategies will be critical.

Firstly, modernising the transmission network is essential to supporting the transition to renewable and low-emission generation. This includes allowing for the integration of smart grid technologies that can dynamically adapt to changing energy generation patterns, and improving the resilience of the gas pipeline network to better support gas fired generation when it is needed.

Second: continued investment in energy storage and other fast-responding technologies—both at the grid-scale and within households—will be vital in helping smooth out the intermittency of wind and solar and shifting excess supply to periods of high demand.

And finally: collaboration between policymakers, communities and industry is vital to fostering a regulatory environment that encourages innovation.

I believe that, together, these strategies can help support a secure, efficient, and sustainable NEM as Australia’s energy landscape continues to evolve.

Okay, those are all the questions for today.

Thank you for joining us for this episode of our Energy Education series.