If you feel confused about your energy bill, you are not alone. Most people have no idea how electricity prices are set. They just know the price keeps going up, and they feel like they cannot do anything about it.
The National Energy Market feels like something only the government understands. The language sounds too technical. It is hard to know who is in charge, how it affects your bill, or what you can do to take control of your energy.
At PSC Energy, we work with homeowners across New South Wales every day. Most of them feel frustrated because no one has explained this clearly. We live and work in the same system, have done the hard work to understand it, and can help you do the same.
In this article, you’ll learn about the following:
- What is the National Energy Market?
- Why Do Electricity Prices Go Up and Down?
- How Electricity Retailers Set Your Prices in the NEM
- FAQ: NEM
By the end of this guide, you will get a clear, simple breakdown of how the National Energy Market works, why your energy prices change, and what that means for you.
What is the National Energy Market?
The National Energy Market, or NEM, is the system that connects power stations to homes and businesses through the electricity grid.
It covers most of Australia, including New South Wales, Queensland, Victoria, South Australia, the ACT, and Tasmania. Western Australia and the Northern Territory are not part of it.
The NEM is not a physical place. It is a market for trading energy.
Power stations bid their electricity into the system. Then retailers buy it and sell it to you through your electricity plan.
The NEM is managed by the Australian Energy Market Operator (AEMO). AEMO makes sure the lights stay on. It keeps track of how much electricity is needed and makes sure there is enough supply. It also balances the grid in real time.
There are a few key players in the NEM:
- Generators, such as coal, gas, wind, hydro, and solar farms, generate electricity.
- Retailers buy that electricity and sell it to you. Some big ones are Origin, AGL, and EnergyAustralia.
- Distributors own and manage the poles and wires that deliver electricity to your home.
- AEMO manages the whole system to keep the supply and demand balanced.
How Energy Moves Through the Market
Every five minutes, generators bid into the NEM. They offer their electricity at a certain price. AEMO accepts the cheapest offers first to meet demand. As more electricity is needed, it starts accepting more expensive bids.
Think of it like an auction. If demand is low, only the cheapest power gets used.
But if demand spikes, like on a hot summer day, AEMO must take higher-priced power to meet the load. That is when prices go up.
Once the electricity is bought, it flows through the grid to your home. Your electricity retailer handles your billing. They pay the market price and then charge you based on your plan, which includes their profit and any extra charges.
If you’re interested in learning a bit more about the differences between energy retailers and distributors, you might want to check out the following article titled, Energy Distributors vs. Energy Retailers: What’s the Difference?
Why Do Electricity Prices Go Up and Down?
Electricity prices change because of supply and demand. When more people use electricity, demand goes up. When there is less electricity available, the supply goes down. Prices rise when demand is high and supply is low.
A few common reasons for price spikes:
- Weather: On very hot or cold days, more people use air conditioning or heating.
- Outages: If a power station breaks down or a fault occurs in the system, the supply drops.
- Fuel prices: If coal or gas prices rise, the cost of generating electricity increases.
- Time of day: Prices are usually higher in the morning and evening when people use more power.
During the day, solar energy floods the system, pushing prices down. At night, when the solar stops producing and people come home and switch everything on, prices go up again.
How Solar Fits Into the NEM
When you install solar panels, your system makes electricity during the day. Your home uses what it needs first. Any extra energy is sent back to the grid. This is called exporting.
Your electricity retailer pays you a feed-in tariff for that extra solar. But feed-in tariffs are getting smaller. This is because so many homes now export solar during the day. There is often more supply than demand. That drives the price down.
In fact, prices sometimes drop so low that solar energy has almost no market value. This does not mean solar is not worth it. It just means that exporting to the grid is no longer the smartest way to use your solar.
Solar farms also bid into the NEM just like any other generator. Because they have low running costs, they can bid for cheap energy. This helps bring down wholesale prices during the day. But it also means that power stations with higher costs, such as coal-fired plants, have a harder time competing. That is why you hear about coal plants closing.
What About Solar and Batteries?
Adding a battery to your solar system changes the game. Instead of sending your extra energy to the grid for a small return, you store it. Then you use that energy at night when grid prices are higher.
This helps you avoid paying high power prices from your retailer. It also protects you from price spikes in the NEM. If the market goes wild on a hot day, you are covered because you are using your stored solar.
Batteries also reduce pressure on the grid. When thousands of homes use their stored energy during peak times, it lowers demand on the system. This helps everyone.
Some battery systems can even let you trade energy with the grid through special programs. These are called Virtual Power Plants (VPPs). They let your battery act like a mini power station. You get paid to support the grid when it needs help.
If you’re interested in solar batteries, you might want to check out the following article titled, Are Solar Batteries Worth It in NSW? PSC’s Ultimate Guide for 2025.
How Electricity Retailers Set Your Prices in the NEM
Retailers protect you from the constant price swings that happen in the wholesale energy market. They buy electricity at prices that change every five minutes, but they do not charge you that way.
Instead, they offer fixed-rate plans that typically last 1, 2, or 3 years. That helps keep things simple on your end.
To do this, retailers need to make smart guesses about where the market is heading. They try to set prices that cover their costs while giving them enough room to handle surprises.
Here’s how they do that:
They study market conditions: Retailers look at supply and demand trends, past price spikes, weather patterns, and major changes such as coal plant shutdowns.
They predict risk over time: The longer the contract, the harder it is to predict what will happen. A one-year deal is easier to price than a three-year deal.
They build in a safety margin: Retailers include extra room in their rate to protect themselves from sudden market shocks.
They add a profit margin: On top of all this, they still need to cover their costs and turn a profit.
When the market is stable, retailers can offer lower prices because they do not need to include as much risk. But when things look shaky, like during periods of high volatility or when central generators leave the grid, that risk grows. Retailers pass that onto you through higher prices.
Longer contracts tend to carry more risk for the retailer. While it might seem like committing to a three-year deal would get you a cheaper rate, that is not always the case. Sometimes, it costs more because the retailer needs to cover three years of unknowns.
It’s also worth noting that:
- You might see a higher renewal quote: That jump in your plan’s price could be less about your usage and more about how the market has changed behind the scenes.
The choices you make about contract length and provider will affect your future payments. It is not just about finding the cheapest rate now.
It is about understanding why retailers set prices the way they do and how the NEM shapes that decision.
If you’re interested in learning a bit more about solar panels and energy systems, you might want to check out the following article titled, Are Solar Panels Worth It in NSW, Australia? A Price Breakdown for 2025.
Stay Current: What the NEM Means for Your Energy
If you have solar, you should understand how the NEM affects your system. Exporting to the grid does not pay like it used to. It is smarter to use more of your own power or store it in a battery.
Even if you do not want a battery right now, you can get a system that is battery-ready. That way, you can add one later when you are ready.
The National Energy Market is complex, but it is not out of your reach. You do not need a degree to understand the basics. You just need someone to explain it clearly, like PSC Energy.
If you still have questions or want to know how solar and batteries can help you in this changing energy landscape, reach out. We are here to help you make sense of it all. It’s what we do.
If you’re interested in learning a bit more about the federal solar battery rebate, also known as the Federal Cheaper Home Batteries Program, you might want to check out the following article titled, What the 2025 Federal Election and the Government Rebate Means for Solar Batteries in Australia.
FAQ: NEM
What is the National Energy Market?
The National Energy Market is the system that links most of Australia’s electricity supply. It connects power stations to homes and businesses across New South Wales, Queensland, Victoria, South Australia, Tasmania and the ACT. It also works as a real-time market where generators sell electricity and retailers buy it.
How does the National Energy Market work?
The market works like a constant auction. Generators bid for electricity at different prices. The Australian Energy Market Operator accepts the cheapest bids first to meet demand. This process happens every five minutes. Retailers then buy this electricity and supply it to you through your energy plan.
Why do electricity prices change in the National Energy Market?
Prices change because supply and demand shift throughout the day. Heatwaves, outages, fuel costs and peak usage all affect price. When demand is high and supply is low, prices rise. When solar generation increases during the day, prices drop.
How does solar power affect the National Energy Market?
Solar power adds more supply during daylight hours. This lowers wholesale prices and reduces the need for expensive generators. It also causes feed-in tariffs to fall because so many homes export solar at the same time.
Why are feed-in tariffs dropping?
Feed-in tariffs are dropping because daytime solar supply is very high. When the market has more energy than it needs, the value of exported solar drops. This lowers the amount retailers can pay you for your excess energy.
How does a battery help me in the National Energy Market?
A battery stores your extra solar so you can use it at night when grid prices are higher. This reduces your need to buy electricity from your retailer. It also protects you from price spikes during peak hours.
How does the National Energy Market affect my electricity bill?
Your bill reflects both wholesale market prices and your retailer’s charges. When wholesale prices rise, retailers adjust their plans. This changes what you pay. When wholesale prices fall, some retailers pass down savings, but not all do.
Does the time of day affect electricity prices?
Yes. Prices are usually lowest in the middle of the day when solar generation is strong. Prices climb in the morning and evening when demand rises and solar drops. This pattern creates the well-known duck curve.
What role does AEMO play in the National Energy Market?
AEMO manages the entire market. It tracks demand, accepts generator bids, keeps the grid stable and responds to emergencies. It also balances supply and demand in real time to keep the lights on.
Is the National Energy Market changing?
Yes. The NEM is shifting as more rooftop solar and large-scale renewable projects enter the grid. Coal plants are retiring, and new storage solutions, such as batteries, are growing in popularity. These changes affect pricing, supply and how homes manage energy.
