Grid-scale battery capacity in the NEM passed 9 GW in the second quarter of 2026, more than double a year earlier, and renewables supplied a record 42.1% of generation.
Two-hour price spreads in the mainland NEM fell by over 70% year on year in autumn 2026, and batteries earned over 60% less than in autumn 2025.
South Australian solar farms lost 42% of their available generation to curtailment over the past year, and total curtailment in New South Wales has risen sixfold since 2020.
A simplistic forecast overstated FCAS revenue 9.5 times for a utility-scale battery in Queensland, and 12.3 times for a behind-the-meter one, against a realistic Gridcog model.
All prices on this page are in Australian dollars.
How the NEM works
How does the National Electricity Market work?
The NEM is both the market and the grid that covers the eastern states of Australia. Its five regions are interconnected, so power can be traded across them, and the Australian Energy Market Operator (AEMO) runs both the market and the system. It is a gross pool, energy-only market with five-minute dispatch and settlement.
Every generator sells into the pool. Generators submit offers to AEMO, which dispatches them in a merit order shaped by price and system constraints, and the marginal offer sets the spot price in each region for each five-minute interval. Each region has a single price, set at its Regional Reference Node and adjusted by Marginal Loss Factors. Settlement moved from 30 minutes to five minutes in October 2021. Buyers and sellers can still trade ahead of dispatch, mostly through financially settled futures and contracts rather than auctions.
What does an energy-only market mean?
That investment signals come mainly from wholesale prices, not from a separate capacity market. The NEM is one of a small handful of energy-only markets, alongside ERCOT in Texas, Alberta, New Zealand and Singapore. The design leads to higher volatility and more extreme price spikes, and the wholesale price is the main signal for whether new generation, load and storage can pay their way.
How does the NEM compare with the GB electricity market?
| Feature | Australia’s NEM | Great Britain |
|---|---|---|
| Market design | Energy-only gross pool run by AEMO | Bilateral trading through exchanges, then real-time balancing by NESO |
| Dispatch and settlement interval | Five minutes | 30 minutes |
| Locational pricing | Zonal: one price per region, adjusted by Marginal Loss Factors | National: one price for the whole country |
| Capacity payments | None; government schemes such as the Capacity Investment Scheme underwrite new build | Capacity Market, with T-4 and T-1 auctions |
| Frequency services | 10 FCAS markets, co-optimised with energy | Dynamic Containment, Moderation and Regulation, Static FFR and Quick Reserve, contracted separately |
| Behind-the-meter access to wholesale prices | Wholesale Demand Response; spot-exposed retail contracts | P415 through a Virtual Trading Party |
CIS and ESEM
What replaces the Capacity Investment Scheme?
The Electricity Services Entry Mechanism (ESEM). The ESEM will be the NEM’s enduring government support mechanism for new generation and storage, replacing the Capacity Investment Scheme (CIS) as it winds down in 2027. Pilot ESEM tenders could start in early 2027, with the first full tender expected in late 2027. It came out of the NEM wholesale market settings review led by Tim Nelson, whose final report was published in December 2025.
| Scheme | What it does | Status (November 2026) |
|---|---|---|
01Capacity Investment Scheme (CIS) | Federal revenue support for new renewable generation and clean dispatchable capacity, through competitive tenders; target raised to 40 GW by 2030 in July 2025 | Tenders running; scheme ends in 2027 |
02Electricity Services Entry Mechanism (ESEM) | Warehouses three tradeable contracts (shaping, bulk energy and firming) bought by reverse auction from projects at least three years after commercial operation | Pilot tenders from early 2027; first tender expected late 2027 |
03South Australia’s Firm Energy Reliability Mechanism (FERM) | Supports dispatchable projects of at least 30 MW that can run at full output for eight hours, with obligations during Lack of Reserve events | First round targets 700 MW, with 400 MW by late 2028 |
What are the ESEM’s three contracts?
Catalina VillaroSenior Energy Analyst
In Gridcog, Catalina Villaro modelled the same Regional Reference PPA for two identical solar farms in North and South Queensland. Cashflows differed significantly, because the strike settles against the state reference fleet’s capture price, not each farm’s own output.
| ESEM service | Contract | How it settles |
|---|---|---|
01Shaping | Time of Day Block Spread Swap: a top/bottom spread contract with charge and discharge windows set the day before from AEMO’s residual demand forecast | Weekly, against spot prices inside the pre-agreed windows |
02Bulk energy | Regional Reference PPA: volume tied to a Reference Production Index for every wind or solar asset over 30 MW in the region | Notional volume × (strike price − spot) |
03Firming | A standard cap struck at $600/MWh, in line with the Administered Price Cap | Seller pays out whenever spot clears above $600/MWh |
Curtailment and MLFs
How much NEM solar is curtailed, and why does location matter?
More every year, and for different reasons by region. Across about 40 mainland solar farms operating since 2020, South Australia now loses 42% of available generation, almost all of it economic curtailment driven by negative prices. New South Wales has seen the sharpest rise, with total curtailment up sixfold since 2020 and about 11% lost to network constraints. Every asset with more than 5% network curtailment is in NSW or Victoria.
That makes network studies as important as price forecasts. Assuming a flat export limit, rather than modelling dynamic network constraints, can significantly overstate a project’s revenue, particularly in NSW and Victoria.
What is a Marginal Loss Factor?
A multiplier that adjusts a site’s energy for the electrical losses between it and its region’s reference node. AEMO sets Marginal Loss Factors (MLFs) every year for every connection point, and they apply to both dispatch and settlement. The revenue difference between a site with an MLF of 0.81 and one of 1.09 can be up to 30% a year, and MLFs can change every year.
Does adding a battery to a NEM solar farm pay?
In the cases we have modelled, yes. Over 20 years on merchant prices, a 110 MWdc standalone solar farm in North-Western Victoria ended up about $13 million in the red, while the same farm with a 50 MW / 4-hour battery delivered about $42 million in profit, even after an extra $100 million in hardware. Across five operating NEM solar farms, a 50 MW / 2-hour battery could have raised revenue by 100% to 400% under perfect conditions.
Modelled in Gridcog
What happens when you retrofit a battery to a curtailed solar farm?
It can capture much of the energy the farm was throwing away. Gridcog Senior Energy Analyst Scott Bosman used a live feed of five-minute data from the 110 MW Wemen Solar Farm in Victoria and modelled it on pure merchant prices over 12 months.
This is a best-case revenue model: MLFs, grid constraints and forecast uncertainty weren’t applied. Gridcog’s autosizing can include them when sizing a real project.
Scott BosmanSenior Energy Analyst
| Step | Wemen Solar Farm, Victoria, last 12 months (modelled March 2026) |
|---|---|
01Curtailment | Only 76% of available generation was sent out; about 50 GWh was curtailed for economic or network reasons |
02Exporting everything | Would have earned $700k less, despite exporting 1.3 times more volume, because so much would have sold at negative prices |
03Autosizing | Gridcog’s autosizing found an optimal 4-hour battery of about 163 MW, using CSIRO GenCost prices and $500k per MW for grid import augmentation |
04Result | 21 GWh, or 23% of solar exports, went straight to the battery to be sold later at non-negative prices |
Sizing a battery for a NEM solar farm or testing its revenue stack?
Model your project in GridcogLarge energy users
How can large energy users take part in the NEM?
Through Wholesale Demand Response, spot-exposed contracts and their own generation and storage. Wholesale Demand Response, introduced in October 2021, lets large users bid demand reductions into the spot market independently of their retailer, but strict baselining rules have slowed uptake: only 74 MW was registered as of May 2025.
Large data centres face new obligations. On 15 July 2026 the Prime Minister announced a national framework requiring large data centres to pay the full cost of their grid connection and be ‘net-generators, not net-users’. The AEMC’s advice to energy ministers proposes certificate and firming obligations that behind-the-meter generation, storage and flexibility would reduce, so every on-site MW lowers what a site must buy for the life of the asset.
Experts
Who are Gridcog’s NEM market experts?
Gridcog was founded in Australia, and its team there writes most of the analysis this page draws on.
Fabian Le Gay Brereton
CEO and Co-Founder
Co-founded Greensense, which was acquired by ERM Power (now Shell Energy), before co-founding Gridcog.
Pete Tickler
Chief Product Officer and Co-Founder
Author of Gridcog’s analyses of Marginal Loss Factors, longer-duration batteries and adding storage to NEM solar farms.
Scott Bosman
Senior Energy Analyst
Works with Gridcog’s customers in Australia on how they model their projects. Before Gridcog, he was an Energy Transition consultant at PwC, where he used Gridcog to model solar and battery scenarios for a client.
Catalina Villaro
Senior Energy Analyst
Author of Gridcog’s guides to ESEM contracts and battery offtake, and of work on local solar sharing in Australia.
Who models NEM projects in Gridcog?
Developers and IPPs, investors and funds, energy majors, large energy users and data centres, consultants, distribution networks and e-mobility teams.
Modelling software for renewable developers and IPPsInvestment modelling for funds and investorsEnergy modelling for energy majorsSolar, battery and EV modelling for large energy usersEnergy modelling software for consultantsModelling for distribution networksFleet electrification and EV charging modelling
Request a live demo
Model your NEM project in Gridcog
Request a demo and we’ll show you how Gridcog models your project against NEM spot prices, FCAS, loss factors and network tariffs.
The team behind Gridcog
Fabian Le Gay Brereton
Chief Executive Officer & Co-Founder
Previously co-founded Greensense, acquired by ERM Power (now Shell Energy).
Pete Tickler
Chief Product Officer & Co-Founder
Co-founded Greensense and led digital innovation at ERM Power (now Shell Energy).
Genna Boyle
Chief Commercial Officer & Head of EMEA
More than 10 years in energy strategy, trading and renewables, with senior roles at Battery Optimiser and Limejump.
.png)
