National Electricity Market: Near-term optimisation

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Optimisation of the National Electricity Market
Priority Initiative
Efficient Markets
Problem/Opportunity timeframe
Near term (0-5 years)
Proposed By
Infrastructure Australia identified initiative
Date added to the IPL
14 February 2019


The National Electricity Market (NEM) serves almost 90% of Australia’s population, but faces significant challenges as electricity generation shifts away from thermal electricity generation, towards a more diverse but intermittent portfolio of fuels, such as wind and solar, backed up by dispatchable generation, such as pumped hydro. The power system is also adapting to changing patterns of consumer demand, predominately caused by the uptake of residential solar power.

This transition will need to be effectively managed to ensure the reliability, security and affordability of electricity for users.

In the near-term, there is an opportunity to optimise the NEM by increasing system connectivity, strength and transfer capacity. This can defer the need for major capital investment and increase competition in the NEM.

Near‑term investments in supporting infrastructure, such as network capacity and systems services, will also create a more reliable and secure power system that can better withstand variable consumer demand and unplanned events.

The power system’s resilience and reliability can also be enhanced by increasing the capacity to transmit electricity across regions, increasing fuel diversity and geographic coverage.

The Australian Energy Market Operator is currently updating its Integrated System Plan (ISP), which was first released in 2018 and formed part of the evidence base for this initiative.

Medium- to longer-term uncertainty of managing the transition to a more diverse portfolio of fuels is also included in the Infrastructure Priority List as a High Priority Initiative.

Proposed initiative

The 2018 ISP identified three groups of investments over the near, medium and long term. This initiative relates to the potential near-term investments (called Group 1 in the ISP) that would improve interconnections between NEM regions, and make better use of existing assets. These are:

  • increasing transfer capacity between the Queensland, New South Wales, and Victoria NEM regions

  • reducing network congestion for existing and committed renewable energy developments in western and northwestern Victoria

  • improving network system strength in South Australia.

Since the release of the 2018 ISP, the Australian Energy Regulator has approved upgrades to system strength in South Australia and consultation is underway on upgrading transmission capacity between Queensland, New South Wales and Victoria.

The investments and their timing will be subject to detailed assessment of their costs and benefits by network infrastructure owners.

Next steps

Proponent(s) to be identified.