Understanding the 2025 National Electricity Market (NEM) review

The energy mix in Australia is shifting quickly, with energy from renewable sources now making up a larger share of generation than ever before. 

Investment to transform the NEM to support this penetration of renewables is also lagging, with Australia still needing a significant build-out of new generation sources and storage capacity. However, market signals aren’t delivering the speed of scale required to achieve the federal government’s goal of 82% renewable energy generation by 2030. 

In November 2024, the Australian Government announced a review of the National Electricity Market (NEM) wholesale market settings by an independent Expert Panel to recommend changes that will encourage investment in firmed, renewable generation and storage capacity.

In the article, we will explore why the NEM review is happening, what changes are being proposed and what this may mean for your business. 

Why is the review happening?

When the NEM was first established as a wholesale electricity market in December 1998, coal-fired power stations were the dominant source of electricity generation. With the Australian Energy Market Operator (AEMO) now expecting 90% of the NEM’s coal fleet to retire by 2035 and the government’s Capacity Investment Scheme underwriting for new energy generation projects to end by 2027, many believe that the structure of the power market needs to change.

The 2025 NEM review is being conducted to ensure the NEM is suitable for a renewable-dominated world and providing improved system affordability, reliability and predictability for consumers. 

What is being discussed?

With the review underway, there have been no definitive findings or conclusions. However, the Expert Panel released draft recommendations in three areas, addressing: 

Short-term spot markets

While the spot market is largely efficient at dispatch, prices are sharpening at all timeframes as the energy system becomes increasingly weather-dependent for both supply and demand, leading to energy price volatility. At this stage, the Expert Panel has indicated support for maintaining the spot market. Additionally, a growing share of resources (such as rooftop solar, household batteries and demand response) are invisible to the market, making it difficult to accurately forecast supply and demand. The review recommends that price-responsive resources should be encouraged to become visible to alleviate this challenge.  

Medium-term contract markets  

Wholesale hedging contracts allow retailers to manage financial risks and have more certainty over wholesale energy costs, as well as providing a signal to invest in new generation capacity. Having an accessible and liquid contract market is increasingly key for managing risk in a weather-dependent energy system, especially considering that variability on wholesale energy prices is predicted to keep growing as the system becomes more weather dependent. The NEM Review Expert Panel has recommended establishing an always-on market making obligation (MMO) to support liquidity through the energy transition and improve market transparency and access for small retailers. 

Long-term investment markets 

The Expert Panel found the most significant barrier to investment in new firmed renewable generation was the mismatch between long financing timeframes required by potential new sellers and the short contracting horizons of market buyers, or the tenor gap. To incentivise investment in the full range of electricity services needed for the NEM, the Panel recommended establishing the Electricity Services Entry Mechanism (ESEM) to enhance liquidity and connect long-term investment signals to short- and medium-term markets and also coordinate the procurement of Essential System Services (ESS).  

The Panel is seeking further feedback from stakeholders on the draft recommendations before issuing its final report and implementation roadmap by late 2025.  

What does this mean for your business?  

The NEM Review could potentially provide a number of benefits for energy users.   

These benefits include: 

• More stable and predictable energy pricing; 

• Improved system reliability as new investment is unlocked; 

• New opportunities to participate in mechanisms like demand response, which can help your business to unlock additional revenue; 

• An energy market that supports energy users whether they prefer to be hands-on in managing energy costs or a simple, fixed price.

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