Australia
The most open market on this map. An energy-only pool with no capacity payment, settled every five minutes, sitting on top of one of the world's largest LNG export businesses.
Overview
Scarcity here is priced, not procured. Australia runs an energy-only pool with no capacity payment, a cap above twenty thousand dollars a megawatt-hour, and settlement every five minutes. Nothing else on this map is that exposed.
The National Electricity Market (NEM) covers Queensland, New South Wales, the ACT, Victoria, South Australia and Tasmania — six jurisdictions on one interconnected system. Western Australia and the Northern Territory sit outside it entirely, on separate systems with their own rules. Physically there is no national grid. There is a long, thin chain of regions joined end to end, and that shape drives most of the pricing.
Gas runs the other way. Australia is one of the world's largest LNG exporters, shipping 81.2 million tonnes of LNG in 2024 — enough to make it the world’s third largest exporter. East-coast domestic gas therefore competes with the export market for the same molecules. Domestic buyers are bidding against Tokyo.
In a capacity market a generator recovers fixed costs outside the spot price, so spot can sit low and quiet for years. The NEM has nowhere else to put them. Revenue has to come out of a handful of very expensive intervals. That is why the cap sits where it does, and why the price distribution has a fat right tail instead of a tidy shape.
Two things anchor everything below. The price cap and the cumulative price threshold set the most a shortage can ever be worth. And east-coast gas is tied by arbitrage to Queensland LNG export netback, so a Japanese or Chinese buyer chasing a cargo is bidding against an Australian smelter without ever meeting one.
Market structure
One market operator, one rule-maker, one regulator. Underneath them sit two separate wholesale electricity markets, and only one of them pays for capacity.
Who does what
| Function | Body | Role |
|---|---|---|
| Market and system operation | AEMO | Operates the NEM, the WEM and the east-coast gas markets |
| Rule-making | AEMC | Makes the National Electricity and Gas Rules; sets the price settings |
| Economic regulation | AER | Network revenues, market conduct, compliance |
| Competition and gas transparency | ACCC | Gas inquiry, LNG netback price series |
| Export controls | Resources Minister / DISR | Administers the Domestic Gas Security Mechanism |
The NEM: energy-only, by design
The NEM pays generators for energy delivered and for frequency control ancillary services. It does not pay for being available. No capacity auction, no reliability option bought years ahead as a standing product. A plant that runs two hundred hours a year earns its whole fixed-cost recovery in those hours. The design accepts that this occasionally produces silly numbers.
The counterweight is a set of administered limits. The market price cap currently sits at $20,300/MWh for 2025-26, with a cumulative price threshold of $1,823,600 measured over a rolling seven days of trading intervals. Breach it and the market drops to an administered price cap of $600/MWh set by the AEMC until the rolling sum falls back. The floor is -$1,000/MWh. Negative prices in the middle of the day are routine.
Western Australia is a different market
The Wholesale Electricity Market (WEM) serves the South West Interconnected System and is operated separately by AEMO. It has a Reserve Capacity Mechanism: an explicit payment for certified capacity. Two markets in one country, opposite answers to the same question. Anyone talking about "the Australian power market" almost always means the NEM and has forgotten the west exists.
Infrastructure — power and gas
The power system is a chain of regions, not a mesh. The gas system splits in two: an export-facing east coast, and a west that looks after itself.
Power
Five NEM regions
Queensland, New South Wales, Victoria, South Australia and Tasmania each clear their own regional reference price. The ACT settles within New South Wales.
Radial topology
The regions are joined in a line, not a grid. Queensland connects only to New South Wales; Tasmania only to Victoria, via an undersea DC link.
Two separate systems
Western Australia's SWIS and the Northern Territory are not connected to the NEM and never have been.
Schematic — system topology, not a geographic map. The five NEM regions form a chain. When a link between two regions is fully loaded, the regions on either side price independently — which is why a South Australian position is not a hedge for a Queensland one. Regions and connections per AEMO.
Gas
East-coast gas is not one market. AEMO runs several: the Declared Wholesale Gas Market (DWGM) in Victoria, Short Term Trading Market (STTM) hubs at Sydney, Adelaide and Brisbane, and the Gas Supply Hub (GSH) at Wallumbilla and Moomba for short-term physical trading, alongside pipeline capacity trading and the Gas Bulletin Board — all operated by AEMO. Western Australia has its own bulletin board and no equivalent traded market.
Wallumbilla is the point that matters commercially. It sits beside the Queensland coal seam gas fields feeding the three Gladstone LNG trains, so the domestic price discovered there tracks the export alternative closely. It could hardly do anything else.
Demand and supply
The coal fleet is in managed retreat. Rooftop solar penetration is the highest anywhere. And the export sector burns through more gas than the domestic market does.
Demand
Grid demand is not growing the way headline consumption suggests. A large and rising share of it is met behind the meter. Roughly 43% of Australian households have rooftop solar, giving Australia the world's highest solar generation per person, over six times the global average. Operational demand collapses in the middle of the day and then ramps hard into the evening. The midday trough is where negative prices come from.
Supply
Coal still supplies the largest single block of generation, though its share falls each year as old units close. Gas is a small share and behaves as a peaking and shoulder fuel, not baseload. That matters more than it sounds: the marginal unit in the NEM is often not gas at all.
Shares for 2025. Source: Ember, corroborated by Low Carbon Power.
| Indicator | Direction | Comment |
|---|---|---|
| Coal generation | Declining | Fossil generation fell 3.9% in 2025 |
| Solar | Rising fast | Capacity more than doubled since 2020; rooftop dominant |
| Wind | Rising | Around 13% of generation and growing |
| Gas-fired generation | Flat, peaking role | Sets price at the margin in tight evening intervals |
| Negative price intervals | Rising | Consequence of the midday solar trough |
Gas supply
East-coast supply is mostly Queensland coal seam gas: 28,955 PJ of proved and probable CSG reserves in 2024, with Bowen and Surat covering nearly all eastern production. The southern states burn the most gas in winter and sit furthest from that supply, leaning on southbound pipeline flow and storage to get through. Geography, not a shortage of molecules, is what drives the winter tightness warnings from the ACCC gas inquiry.
Queensland gas can be liquefied and shipped, so the domestic price will not sit far under export parity for long. Run the ACCC netback series against domestic contract offers. When the gap widens it is telling you about a pipeline or a liquefaction constraint, not about how much gas anyone wants to buy.
Price setting mechanism
A marginal-cost pool, settled every five minutes, with a cap high enough that ten or twenty intervals can make an entire year's revenue.
The dispatch engine
Generators bid capacity into price bands. AEMO's dispatch engine stacks them cheapest first, respects network and interconnector constraints, and dispatches until demand is met. The dearest offer dispatched sets the regional reference price that everyone who cleared in that region receives. Constraints bind region by region, so one interval can produce five different prices.
Five-minute settlement
Until 2021 the NEM dispatched every five minutes and settled on the average of six dispatch intervals, a thirty-minute price. Five Minute Settlement in October 2021 closed that gap: dispatch and settlement now run on the same five-minute clock.
Not a technicality. Under the old design a generator could bid very high in the first dispatch interval, drag the half-hour average up with it, and collect that average for the full period whether or not it kept delivering. Aligning the intervals pays assets that genuinely respond inside five minutes, batteries and fast gas above all, and kills a rent slower plant used to collect. It also means pre-2021 price history is a poor calibration set for a volatility model.
The cap and the circuit breaker
The market price cap of $20,300/MWh for 2025-26 is the ceiling for a single interval. The cumulative price threshold of $1,823,600 is the ceiling for a rolling week. It sums prices across seven days of trading intervals. Trip it and the market switches to an administered price cap of $600/MWh until the sum recedes. The floor is -$1,000/MWh, with an administered floor of -$600/MWh — all confirmed for 2028-32 by the AEMC Reliability Panel.
A cap contract pays out on the spot price. Once the CPT trips, spot is held at $600/MWh by administrative fiat no matter how tight the system physically is. The payout stops at the exact moment the stress peaks. Price that asymmetry or it will find you.
Gas price formation
No domestic marginal cost stack sets east-coast gas. Export parity does. The ACCC publishes an LNG netback price series, being what an exporter could realise on an Asian cargo less liquefaction, shipping and the rest, and domestic offers get judged against it. At 3 August 2026, the historical netback stood at $20.47/GJ, with the two-year forward at $26.34/GJ and the oil-linked medium-term estimate at $14.23/GJ. The gap between the spot-linked and oil-linked curves is a trade in its own right.
Regulatory regime
One body writes the rules, another enforces them, a third operates the market. Behind all three the Commonwealth keeps a blunt instrument pointed at gas exports.
| Body | Remit |
|---|---|
| AEMC | Makes the National Electricity, Gas and Retail Rules; sets the price settings through its Reliability Panel |
| AER | Enforces the rules, regulates network revenues, monitors conduct |
| AEMO | Operates the NEM, the WEM and the east-coast gas markets |
| ACCC | Gas inquiry to 2030; publishes the LNG netback series |
| Energy and Climate Change Ministerial Council | Intergovernmental policy direction |
Price settings are reviewed, not fixed
The cap is not a permanent number. The AEMC's Reliability Panel reviews the reliability standard and settings periodically. The 2026 Reliability Standard and Settings Review recommended retaining the current structure into 2028-32, with the market price cap at $22,800/MWh and the cumulative price threshold at $2,325,600 in 2022 dollars. The numbers keep going up. Hold cap contracts and every review is a diarised event risk.
The gas export lever
The Australian Domestic Gas Security Mechanism lets the Resources Minister restrict LNG exports when the east-coast market faces a supply shortfall. A shortfall year is declared on advice from AEMO, the ACCC and industry, after which exporters can be made to limit shipments or find additional gas. It has never been fired in anger. Its job has been to force negotiated outcomes, the Heads of Agreement with the Queensland exporters among them, but the option is real and sits above every east-coast gas contract.
Policy has kept moving that way, with the Commonwealth working up a domestic gas reservation scheme to sit alongside the export-control mechanism. East-coast gas therefore carries a live political option that nobody writes into a contract. The netback link holds until Canberra decides it should not.
What this means for a position
Nothing on this map prices scarcity as cleanly as the NEM. No capacity payment smooths the curve, no supra-national body sits above the rule-maker, and no price is administered until the cumulative threshold trips. Returns pile into a handful of intervals and hedges go non-linear around exactly those intervals. Location is a first-order risk here, not a detail for the back office.
Key links
Primary sources for this market. Figures on this page are drawn from these and from published market data.