Submission: NEM Wholesale Market Settings Review Draft Report Consultation

17 September 2025
 

To: NEM Review Secretariat
Re: NEM Wholesale Market Settings Review Draft Report Consultation
 

Thank you for the opportunity for the Institute for Energy Economics and Financial Analysis (IEEFA) to provide input to the National Electricity Market Wholesale Market Settings Review Draft Report. 

IEEFA is an independent energy finance think tank that examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

IEEFA commends the NEM Review Panel in its holistic approach to the wholesale market settings review. The review considers the roles of retailers, consumers and suppliers, recognises both demand and supply-side resources and integrates short, medium and long-term considerations. It seeks to support jurisdictions to achieve their objectives within a consistent national framework, while also building on and integrating with existing processes in the National Electricity Market (NEM).

IEEFA’s key comments on the review are as follows.

• By the time the Capacity Investment Scheme (CIS) completes its contracting process and the Panel’s framework begins (around 2027), much of the NEM coal fleet will still be operating. The electricity sector will likely remain without a binding emissions constraint. Further, recent history shows governments repeatedly intervening to keep coal plants operationally viable, which may continue into the future. Consequently, as the Panel’s framework begins, the market will remain subject to considerable uncertainty over when coal plants might close. This creates ongoing uncertainty surrounding how much new capacity is needed, when the new capacity must be built, and the appropriate price to contract for power. This uncertainty affects all participants, including coal plant owners.
• Given this context, we believe further consideration and explanation is needed on why it can be expected that market participants (with enhanced liquidity through the Market Making Obligation (MMO)) will be willing to contract projects (over their first seven years or so) at the scale and price necessary to support investment to replace aging coal and meet emissions reduction targets.
• The Panel should consider starting support through the Electricity Services Entry Mechanism (ESEM) in the earlier years of project life, given the coal exit uncertainty currently faced, then paring it back over time to only cover a project’s later years of life. 
• The Panel should consider further means to reduce uncertainty around coal exits, including potential integration of coal exit timing with strategic reserves and/or the ESEM, to improve investor confidence and the market’s ability to deliver stable long-term price signals.
• The Panel should consider how best to integrate emissions requirements into the ESEM and MMO for all categories of services, to align them with the National Electricity Objectives (NEO).
• The Panel should ensure that demand-side resources are treated on a level playing field with supply-side resources in the proposed ESEM, MMO and strategic reserve.
• The Panel should carefully consider and consult on the appropriate forms of demand-side resources that should be participative and/or visible, and the right pathways for achieving that.
• The Panel should reconsider the focus on transitioning to a higher fixed component in network tariffs, as it is not necessarily a fairer approach to managing network costs, and could lead to detrimental side effects.
• IEEFA recommends the Productivity Commission undertake a first-principles review of the economic regulation of distribution networks, given that distributed energy resources (DER) can provide network services like easing congestion, to avoid augmentation or replacement of network infrastructure. 

We thank the Panel for the significant work and engagement undertaken throughout the NEM Review process.

Please find our full submission response contained in the following pages. We invite any questions on matters mentioned in this submission.

Kind regards,

Johanna Bowyer – Lead Analyst, Australian Electricity, IEEFA
Tristan Edis – Guest Contributor, Australian Electricity, IEEFA 
Jay Gordon – Energy Finance Analyst, Australian Electricity, IEEFA