NEM Wholesale Markets Review

For the past several months, an independent, government backed, market review led by Tim Nelson has been considering market reforms to promote investment in firmed renewable generation and storage capacity in Australia’s east coast electricity market. This “NEM Review” (also known as the “Nelson Review”) is a key industry focus throughout 2025 and has been widely expected to present the most significant change to investment signals since the announcement of the Capacity Investment Scheme.

The Draft Report was released today for consultation, making several recommendations of substantial significance and calling for industry feedback.

Key takeaways

The key recommendations of the Draft Report include:

• (Retain the spot market) the current structure of the NEM as a real-time regional energy spot market should be retained with incremental changes. The report recommends against introducing capacity markets (like the WEM), day-ahead markets and locational marginal pricing.
  
  
• (Expand participation in the spot market) encourage or mandate central dispatch participation for various sectors that currently operate outside the market, including:
  • Large VPPs and other portfolios of aggregated resources – such as portfolios of <5MW batteries (a key growth sector in the NEM); and
  • Large customers and industrial loads – we expect this will capture smelters, manufacturers and large data centres.

Key open questions for consultation include whether such resources should be ‘active’ (i.e. must participate in spot market bidding and dispatch by AEMO) or merely ‘visible’ to AEMO, and whether the changes would mandate participation or merely incentivise voluntary participation. We expect the final positions on these questions will have substantial implications for impacted participants.

• (Mandatory Market Making Obligation) a new mandatory “always-on” market making obligation be introduced to compel certain participants to offer standardised exchange-traded contracts (that align with the nature of the offeror’s assets) that must be made available for trading within a limited bid-ask spread.
  
  The type of contracts the extent to which the obligation will apply to participants are the subject of further consultation, however, we expect that the natural participants compelled to make such offers will be generators and large storage providers.
  
  This mechanism builds on the existing market making obligations in the Market Liquidity Obligation and within the ASX voluntary market making scheme and is intended to support short-to-medium derivative market liquidity (1-5 years into the future).

• (Electricity Services Entry Mechanism) a new contract underwrite mechanism be introduced that supersedes the existing Capacity Investment Scheme. It intends to improve contract liquidity by providing offtake contracts to new project proponents across the later period of a proposed project’s lifespan (~7-15 years post commercial operations – subject to consultation).
  
  The type of services that will be contracted for will be:
  • bulk zero emissions energy services (i.e. rooftop solar, wind, run or river hydro, biomass);
  • shaping services (i.e. utility scale battery storage, pumped hydro); and
  • firming services (i.e. gas, aggregated small-scale storage, pumped hydro, long-duration batteries).

The mechanism will see a scheme administrator purchase (through a reverse-auction process) standardised, fungible contracts to assist with the development and financing of new projects. The intention is for the scheme administrator to then ‘warehouse’, and subsequently sell these contracts to the market in later years (when market demand emerges) to better improve long-term investment signals in the NEM.

Relevantly, the services to be contracted by the scheme administrator will not discriminate on technology type, recognising the important attributes that thermal (i.e. gas) and non-thermal generation (i.e. hydro, wind and solar) resources provide to the NEM.

More to come

The Draft Report also makes several interesting observations that will be the subject of much unpacking over the following weeks. These include:

• improving regulatory frameworks to manage excessive rebidding and algorithmic bidding (often used by utility scale batteries);
• exploring approaches to improve the accessibility of derivative markets with a focus on prudential and margining requirements;
• a new longer-term out-of-market reserves service should be established to cover high-impact, low-likelihood events; and
• exploring reforms to network tariff structures.

Sign up to our publications for more insights on the implications of the proposals recommended by the NEM wholesale market settings review.

Next Steps

Consultation on the Draft Report closes on 17 September 2025. However, the Draft Report notes that there will be engagement with key stakeholders as the process develops. The final Report is expected to be issued by the end of 2025.

Interested in hearing more on Australia’s plans for the future of energy?

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