The Australian Energy Market Has Lost Its Purpose
Australia’s energy system is still called a “market,” but it no longer behaves like one. The original intent behind market reform in the 1990s was to deliver electricity as an essential service at the least cost to consumers, through competition and efficiency. That vision has been lost.
Today, the so-called National Electricity Market (NEM) functions less as a competitive energy system and more as a financial marketplace, where investment incentives, government targets, and profit motives dominate decision-making. Consumers are no longer at the centre of the model — they have become the collateral funders of an investment scheme designed to drive capital flows rather than affordability.
From public service to financial system
The National Electricity Objective (NEO), as defined in the National Electricity Law, states that the purpose of Australia’s energy framework is “to promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers of electricity with respect to price, quality, safety, reliability and security of supply.”
In 2023, this objective was amended to also include “the achievement of targets set by a participating jurisdiction for reducing Australia’s greenhouse gas emissions.”
What was once a clear commitment to affordability and efficiency has become a balancing act between consumer interests and government-driven emissions targets. These targets, while framed around climate action, increasingly function as investment signals that justify large-scale infrastructure spending rather than ensuring least-cost outcomes for households and businesses.
The Australian Energy Market Operator (AEMO), originally established to manage dispatch and maintain reliability, now designs the Integrated System Plan (ISP) — a centralised blueprint for future infrastructure. Instead of allowing market forces to reveal the lowest-cost pathway, the ISP directs investment according to policy-driven scenarios that assume extensive new transmission, renewable generation, and storage. Its “least-cost” label applies only within the boundaries of those policy assumptions, not in relation to actual consumer prices.
Targets without accountability
Meanwhile, federal and state governments set climate and renewable-energy targets that are less about emission reduction and more about economic stimulation. New projects create jobs, boost regional economies, and generate political capital. But they also commit consumers to decades of infrastructure debt, network duplication, and inefficiency.
When policy success is measured by megawatts installed or kilometres of transmission built — not by affordability or environmental outcome — the system rewards activity, not performance. The result is a massive expansion of capital investment that looks good on a balance sheet but erodes the original “least-cost” principle.
The case for transformation
Proponents of the current energy framework argue that large-scale investment is not optional but essential. Australia’s thermal generation fleet is old, emissions-intensive, and rapidly approaching the end of its operational life. Replacing it requires massive new capacity in renewables, firming, and transmission simply to maintain reliability, let alone reduce emissions.
From this perspective, the Integrated System Plan and associated policies represent long-term least-cost insurance against the far higher economic and social costs of inaction — including unplanned generator closures, supply shocks, exposure to carbon pricing, and the escalating impacts of climate change. Supporters maintain that building a zero-emissions grid now avoids future instability and creates durable value for consumers over decades.
Yet this rationale highlights the tension at the heart of the market: the short-term financial burden is borne by consumers through rising bills, while the long-term benefits remain speculative and heavily dependent on government targets and investor behaviour. The question is not whether the transition should occur, but whether the current investment model — shaped by political objectives and profit incentives — delivers it efficiently and fairly.
Profit, not public service
Renewable developers, transmission consortiums, and private investors now compete not to deliver lower prices, but to capture returns from market mechanisms, subsidies, and regulated revenue streams. Every layer of the system — planning, financing, construction, and operation — is structured to ensure profitability.
Electricity has become a tradable financial product rather than a public utility. Retail prices rise even as generation costs fall, because the market rewards volatility, complexity, and scale, not efficiency. It is a perverse outcome in a system meant to serve households and businesses with affordable, reliable power.
AEMO as a quasi-regulator of capital
AEMO’s role now resembles that of a financial regulator, overseeing investment confidence rather than consumer protection. It coordinates system security and reliability, but its planning function prioritises investor certainty and project viability — language more at home in corporate finance than public service delivery.
This shift has turned the NEM into a policy-driven investment ecosystem, where governments and institutions manage risk on behalf of capital, not consumers. The result is predictable: record spending, record profits, and record electricity bills.
Restoring purpose and trust
If electricity is truly an essential service, then it must be treated as such. That means realigning the energy system with the public interest — ensuring that planning, policy, and market design serve consumers first, not investors or governments seeking economic returns.
The current trajectory is unsustainable. A system built to deliver “least cost to consumers” cannot achieve that goal while operating primarily as a vehicle for financial gain. Until this contradiction is confronted, the Australian energy “market” will remain a market in name only.