5 Urgent Reforms to Rescue Australia's Broken Energy Market
The National Electricity Market (NEM) has been labelled a failure by a groundbreaking new report that proposes a complete restructure. Key recommendations include splitting the Australian Energy Market Operator (AEMO) into two separate bodies and returning transmission networks to public ownership. These changes are designed to fix systemic issues that have led to soaring prices, reliability concerns, and a lack of investment. Below are the five essential reforms that could transform the NEM into a more stable, affordable, and sustainable system.
1. Split AEMO into Two Independent Entities
The report argues that AEMO's dual role—managing both the power system's security and the financial market—creates a conflict of interest. By splitting it into a system operator focused on reliability and a market operator focused on efficiency, accountability would improve. Transmission coordination would also become clearer. This separation mirrors international best practices, such as in the UK and Texas, where distinct bodies handle operational and commercial functions. The change would reduce complexity and allow each entity to specialize, ultimately benefiting consumers.
2. Bring Transmission Networks Back Under Public Ownership
Private ownership of transmission lines has led to profit-driven decisions that clash with long-term public interest, says the report. Returning these assets to public hands would prioritize grid reliability, fair pricing, and renewable integration. Governments could coordinate investments without shareholder pressure. For example, AEMO’s split would make public transmission easier to manage. Countries like New Zealand and many US states demonstrate that public ownership can lower costs and improve network resilience. This reform is seen as crucial for upgrading aging infrastructure and connecting new solar and wind farms.
3. Address the Root Causes of Market Failure
The current NEM design is blamed for causing price volatility and underinvestment. The report identifies failed capacity mechanisms and flawed bidding rules as key problems. It recommends introducing a centralized capacity market to ensure enough generation is available, and revising dispatch rules to favor cheaper renewable energy. Without these fixes, even public transmission won't prevent blackouts. Market failure also stems from fragmented state policies; a unified approach is needed.
4. Strengthen State and Federal Coordination
Australia's energy governance is a patchwork—states control their own networks and policies, while the federal government oversees the NEM. This creates bottlenecks for new projects and inconsistent regulations. The report calls for a national energy planning authority to align state targets with federal goals, such as net-zero emissions by 2050. Improved coordination would also support AEMO’s restructured roles. Without this, renewable zones may remain underdeveloped, and consumers will continue to pay the price.
5. Learn from International Best Practices
The report cites successful overseas models, such as the UK’s Office of Gas and Electricity Markets (Ofgem) and New Zealand’s state-owned Transpower. These examples show that separating market and system operations and public ownership of critical infrastructure can lead to more reliable and affordable electricity. Addressing market failure also requires adopting proven mechanisms like capacity auctions and locational marginal pricing. Australia must adapt these lessons to its own geography and politics, but the direction is clear.
These five reforms represent a comprehensive shift in how Australia manages its electricity market. By splitting AEMO, returning transmission to public hands, fixing underlying market flaws, improving governance coordination, and learning from global successes, the NEM could become a model for the 21st century. The report makes it plain: incremental adjustments won't suffice—only a fundamental overhaul can deliver reliable, affordable, and clean energy for all Australians.