Every industry has its own jargon and acronyms, and the energy market is no exception. If you don’t know your ABCs from your AEMOs, here are the terms you need to know to be able to follow most discussions about the market.
AEMC: The Australian Energy Market Commission is the independent body responsible for making and amending the rules that govern the National Energy Market (NEM), and for advising governments on how energy markets should be developed.
AEMO: The Australian Energy Market Operator is responsible for the day-to-day operations of Australia’s energy systems and markets, including the NEM. It’s AEMO’s responsibility to ensure all Australians have access to reliable, secure and affordable energy.
AER: The Australian Energy Regulator polices the system and monitors the market for rule compliance with the National Energy Retail Law (NERL). It continuously monitors market prices and network constraints and outages, and performs regular audits and targeted compliance reviews. When national energy laws are breached, AER can issue an infringement notice (similar to an on-the-spot fine); seek a court order; initiate civil proceedings; or even revoke a retailer’s right to sell energy.
Baseload power: This refers to generating units that typically run continuously throughout the year and operate at stable output levels, except during maintenance outages. Because of their efficient and low-cost generation, baseload generators – such as coal-fired power stations – typically provide the majority of the power used by the energy grid.
Behind the meter: See ‘DER’.
Congestion: Electricity is transported from suppliers to consumers along a transmission network. When an element of that network, such as a transmission line, reaches the limits of its capacity and cannot carry any more electricity, it is congested. See ‘transmission loss’.
Contract market: To manage the risks associated with the volatility of the spot market price, many large energy users and energy retailers instead purchase energy through the contract market – where generators can enter directly into contracts with energy retailers and large industrial businesses to sell them electricity at a fixed price.
Demand: The amount of power consumed at any given time. See ‘Operational demand’ and ‘underlying demand’.
DER: Distributed energy resources are renewable energy units or systems that are commonly located at homes or businesses. These are also referred to as ‘behind-the-meter’ systems, because the power is generated at the user’s home or place of business – i.e. behind their energy meter – instead of being supplied to them by a centralised generator.
Dispatchable generation: Sources of electricity that can be switched on and off and ramp their power output up and down according to market needs are dispatchable. Gas turbines tend to be the most flexible generators – i.e. they can ramp up and down the fastest – but coal-fired power stations are also dispatchable.
Solar and wind generation, on the other hand, is intermittent, rather than dispatchable, because it is dependent on the weather. Excess solar and wind energy is only dispatchable if it is stored, either in batteries or pumped hydro storage.
Dispatch price: See ‘five-minute settlement’.
Distributors: Distributors are the companies responsible for building and maintaining the infrastructure needed to distribute energy, including power lines and poles and gas pipelines. Distribution companies operate within set geographical boundaries, and you can’t choose your local distributor.
DMO: The Default Market Offer is the annual electricity price cap in New South Wales, South Australia and South East Queensland, where electricity prices are not regulated. The DMO protects consumers on standing offers (a basic plan with no extras or discounts) from paying excessive prices, because retailers cannot charge them more than this price.
Electricity grid: Often referred to simply as ‘the grid’, this is the interconnected network that carries electricity from generators, via distributors, to energy users.
EMRF: The Energy Ministerial Regulatory Forum, made up of the nation’s energy ministers, drives cooperation between the Commonwealth, state and territory governments. The EMRF doesn’t take part in the day-to-day operation of energy markets, but it is responsible for monitoring and reforming these markets.
Energy Ombudsman: Each state and territory has its own energy ombudsman service. These are independent and impartial bodies that provide a free and independent dispute resolution service for energy customers who have an unresolved issue with their retailer.
ESB: The Energy Security Board is tasked with providing system oversight for energy security and reliability.
Five-minute settlement: Generators are required to make offers to supply electricity to the market. AEMO puts the generators’ offers in order from least to most expensive, where practicable, starting with the cheapest offer and working their way up to more expensive offers – until demand is satisfied. The highest price AEMO accepts becomes the dispatch price.
But even though this process happens at five-minute intervals, the spot price – the price generators are actually paid for their electricity – had traditionally been settled at 30-minute intervals. The spot price of a 30-minute trading interval was the average of the last six dispatch prices.
From October 2021, however, the spot price has also been settled at five-minute intervals, bringing settlement in line with dispatch.
Fossil fuels: Made from the fossilised, buried remains of plants and animals that lived millions of years ago, fossil fuels release carbon dioxide when burned. Coal, oil and natural gas are all fossil fuels. These fuels have provided most of the energy required to power homes, cars and businesses for over a century, and continue to make up the majority of generation in the NEM, although renewable energy is on the rise.
Frequency control: Synchronous generators in traditional power stations spin at around 50 cycles per second. Maintaining this speed, which is referred to as frequency, is essential for maintaining the reliability of the grid. See ‘inertia’.
Generator: A company that produces electricity or gas, using either fossil fuels or renewable energy sources.
HELE: High Efficiency, Low Emissions power stations burn less coal, emit less carbon dioxide and release less pollutants to generate the same amount of energy as a traditional plant, giving them a smaller footprint.
Inertia: Synchronous generators that spin at the same frequency as the energy system, such as coal and gas-fired power stations, provide the grid with inertia. Inertia acts as a shock absorber, giving the grid more ability to withstand surges and imbalances in supply and demand and recover from system failures. A lack of inertia exposes the grid to instability.
Non-synchronous generators, such as wind turbines and solar PV panels, are not synchronised to the grid, and therefore do not currently provide it with inertia.
Interconnectors: The NEM, which is the longest synchronous power system in the world, is made up of five regions – Queensland, New South Wales (including the ACT), Victoria, Tasmania and South Australia. Interconnectors are transmission links that join the regions together. Interconnectors are intended to deliver energy from lower-price regions to higher-price regions, thereby equalising prices between the regions, but when the Interconnectors reach the limits of their capacity (see ‘congestion’), it leads to greater price differences between regions.
Intermittent generation: In contrast with dispatchable generation, intermittent generating units are those whose output is weather-dependant and not readily predictable. Solar PV systems and wind turbines are examples of intermittent generation, though solar and wind energy can be made dispatchable if it is stored, either in batteries or pumped hydro storage.
Liquidity: Liquidity refers to the number of buyers and sellers willing to trade in the energy market. A highly liquid market has many willing traders, while a market with low liquidity is low in trading volume. In a highly liquid market, each individual transaction will have less impact on the price of energy than it would in a market with low liquidity.
Load shedding: A last resort measure when demand for electricity is set to exceed supply, load shedding is the controlled reduction of electricity supply to parts of the grid.
Market offer: Market offers are contracts offered by retailers that typically come with perks and incentives, like discounts or credits, but may also come with fees and charges that don’t apply to standing offers. Relative to standing offers, retailers have much more flexibility in how they structure the terms and conditions of these offers in response to the market.
Market price cap and floor: The market price cap sets the maximum level the dispatch price can reach, while the market price floor sets the lowest level the dispatch price can reach. Within that range, the wholesale price of electricity is determined by supply and demand at any given moment.
The market price cap is adjusted for inflation, but the market price floor always stays the same.
NEM: The National Electricity Market is a spot market, or pool, in which power supply and demand is matched in real-time through a centrally coordinated dispatch process. The world’s longest interconnected power system, it includes Queensland, New South Wales, the Australian Capital Territory, Victoria, Tasmania and South Australia. Because of the distance between networks, Western Australia and the Northern Territory are not connected to the NEM.
Generators offer to supply the market with a certain amount of electricity for a particular price. AEMO accepts those offers, starting with the cheapest generator and working its way up to the more expensive generators until enough electricity has been secured to meet demand.
This process repeats every five minutes, with the highest offer that the AEMO accepts from a generator being set as the dispatch price for that five-minute period. (Since five-minute settlement was introduced in October 2021, this is also the spot price.)
NER: The National Electricity Rules govern the operation of the NEM. These rules are made by AEMC under the National Electricity Law.
Network constraint: A limitation on the dispatch of electricity imposed by the physical capabilities of the transmission network. See ‘congestion’.
Net zero emissions: Governments and businesses around the world are making public commitments to reach net zero, in line with international sustainability frameworks such as the Taskforce for Climate-Related Financial Disclosures (TCFD). A net zero commitment typically relates to the date by which an organisation will emit net zero tonnes of scope 1, 2 and 3 carbon emissions. This can be achieved through the use of energy sources which do not emit carbon, by offsetting emissions, or a combination of the two.
Operational demand: The demand for energy supplied from the grid, as opposed to behind-the-meter systems like rooftop solar. Minimum operational demand is the lowest level of demand for energy from the grid on any given day.
Peak demand: The amount of power required to supply customers at times when demand is greatest.
Peaking plants: Generators that only run when demand is high. These are usually gas-fired generators – they can be ramped up and down faster than coal-fired generators, which makes them ideal for times of peak demand, but they are relatively expensive to operate and typically only run for a few hours at a time.
Peak ramps: Sharp fluctuations in supply and demand.
PPA: Under a Power Purchase Agreement, businesses agree to buy power from a renewable energy project at a fixed price over a long term. These agreements are intended to insulate businesses against rising electricity costs, while providing renewable energy projects with revenue certainty. These agreements can be made directly between generators and customers, or ‘sleeved’ through an energy retailer acting as an intermediary.
Ramping: The ability of a generator to start or stop on command. The ‘ramp rate’ is the amount of time the generator needs to increase or decrease their output.
Rebidding: Though the dispatch price can change every five minutes, generators make their offers up to a day and a half before the power is needed. There is often an unexpected need for more or less supply as the dispatch time draws closer, and when that happens, generators can submit a new offer called a rebid. (If the change in the offer occurs less than 15 minutes before the offer becomes active, this is called a late rebid.)
Rebids enable the NEM to be a dynamic market that reflects unexpected events and changing market conditions, so that supply and demand can be instantaneously matched. Most generators in the NEM put in multiple rebids each day in response to new information as it becomes available, though generators are required to provide a specific reason for the rebid and a record of when they became aware of this reason to ensure transparency.
Reference price: Retailers in New South Wales, South Australia and South East Queensland (where electricity prices are not regulated) must compare their offers to this same base rate whenever they advertise their offers. The reference price is set at the same price as the default market offer (see ‘DMO’).
Reliability: The extent to which customers have access to a continuous supply of energy. If there is reliability in the grid, it means there is adequate capacity – both in terms of generation and infrastructure – to supply customer demand.
Renewable energy: Energy that comes from sources that can be renewed, such as the sun, water, wind, and geothermal heat. While the supply of energy from these sources may be intermittent, they will never truly run out; as opposed to the finite natural resources required to produce fossil fuels.
Reserve: AEMO sets pre-determined reserves in the NEM to ensure there’s capacity to provide a buffer, above the level of the forecast electricity demand and to cover the impact of the loss of the largest energy inputs into a region.
To minimise the risk of draining these reserves and causing long-term outages, AEMO issues Lack of Reserve notices when required to encourage the market to increase supply and limit demand.
Retailer: Retailers purchase energy from generators, either directly or via the NEM. Retailers are the companies who sell energy to consumers (with the exception of some large industrial users who buy energy directly from generators).
Retailer of last resort: An AER scheme that transfers customers of failed retailers to new providers. It is designed to protect customers and ensure their energy service continues in the event that their retailer goes out of business.
REZ: A Renewable Energy Zone connects multiple renewable energy generators and energy storage technologies in the same location, and pairs them with high-voltage poles and wires. This way, renewable energy can reliably and efficiently reach the homes and businesses that need it, when they need it, with minimal transmission loss.
Security: In the energy market, ‘security’ relates to the physical stability of the system. The system is considered secure when certain technical parameters, such as voltage and frequency, are maintained within defined limits.
Single rate tariff: A single rate tariff charges customers a flat rate for their energy usage, no matter when they use it.
Solar feed-in tariff: A credit that owners of rooftop solar systems receive on their power bills for feeding their excess solar energy into the grid.
When your solar panels produce electricity that you don’t use, that power is exported back to the grid. You’ll receive a credit on your power bill for every kWH of electricity that you feed into the grid – this is called a feed-in tariff.
Spot market: A market in which supply and demand is matched in real-time through a centrally coordinated dispatch process. The NEM is a highly competitive and highly regulated spot market.
Spot price: See ‘wholesale price’ and ‘five-minute settlement’.
Standing offer: Every retailer is legally obligated to provide a standing offer, with minimum terms and conditions set by the government. Rates for standing offers are usually higher than for market offers, and they typically don’t come with any discounts of sign-up incentives.
Supply charge: The amount you pay to keep your electricity or gas connected, before your usage is taken into account. This charge goes towards things like infrastructure maintenance, including the upkeep of power lines and poles and gas pipelines.
System strength: This refers to the power system’s ability to maintain strong voltage waveforms in response to disturbances, such as unexpected generator outages or transmission line faults. A grid with high system strength will be more resilient to these disturbances. System strength is primarily supplied by synchronous condensers (see ‘inertia’).
Tariff: The amount your retailer charges you in exchange for supplying you with energy. See ‘single rate tariff’, ‘time-of-use tariff’, ‘supply charge’ and ‘usage charge’.
Time-of-use tariff: A tariff that varies depending on the time of consumption; with the cost of electricity being highest in periods of peak demand and lowest in periods of off-peak demand. The times in between these periods are charged at the in-between ‘shoulder’ rate.
TNSP: Transmission network service providers build, maintain and operate the transmission networks in each region of the NEM.
Transmission loss: Power stations – traditional and renewable alike – are usually located in remote or regional areas, which means the energy they generate flows across great distances, through a vast network of utility poles and power lines, to reach customers. About 10 per cent of the electricity that leaves Australian power stations is lost in transmission, although the exact amount will depend on the distance the energy has to travel; the voltage and resistance of the transmission line; and the amount of power flowing through the line.
Underlying demand: All of the electricity used by consumers at any given time, including energy sourced from both the grid and DER.
Usage charge: This is the cost of the electricity or gas you use. This is also called a variable charge or consumption charge, because it will vary depending on how much energy you use, unlike the supply charge, which is fixed.
VPP: A virtual power plant is a network that aggregates the capacities of distributed energy resources – such as rooftop solar PV units and battery systems, and electric vehicles with vehicle-to-grid capabilities – across a number of different sites so that they can work together as a single power plant, and be dispatched into the energy grid at the right time.
Wholesale price: The wholesale electricity price is what energy retailers pay for the electricity they provide their customers with. See ‘five-minute settlement’ and ‘NEM’.
Stay tuned to What’s Watt to learn more about the Queensland energy system, as we answer every question you have about how we keep the lights on.