Since we created this site in 2007, we’ve increasingly found ourselves writing articles that help to explain market concepts or assist with different aspects of energy literacy. One of the primary reasons we’ve done this is because we’re aware of the major challenge that declining energy literacy represents in the energy transition.
Energy-sector terms and phrases
For newcomers, and even seasoned veterans, the amount of technical jargon, acronyms, and interchangeably-used terms in the energy sector can be overwhelming. In the table below, we’ve started collating our own glossary for future reference. If the term/phrase in the first column has a link, it means you can click through to read more on the topic.
| Term/Phrase | Description |
|---|---|
| 5/30 Issue | Prior to the introduction of 5-Minute Settlement in 2021, the NEM was dispatched on a 5-minute cadence and settled on a 30-minute cadence. The ‘5/30 Issue’ was first acknowledged in 2003 by the AEMO’s predecessor, NEMMCO, and described a market issue that arose from the mismatch of these cadences – whereby once a high dispatch price occurred (particularly, when it occurred early in a 30-minute interval), a strong incentive existed for generators to rebid and move volume to capture what was guaranteed to be a higher-than-average trading price. Greg Denton and Allan O’Neil have discussed the issues in these WattClarity articles here and here. The introduction of 5-Minute Settlement has since negated the 5/30 issue.
See also: 5-Minute Settlement, Trading Prices, Dispatch Prices |
| Administered Pricing; and Administered Price Cap (APC) | Administered Pricing is a situation where the price for a commodity within a region are capped at the Administered Price Cap (APC). It is triggered when the Cumulative Price exceeds the Cumulative Price Threshold (CPT) – and lasts until the end of the trading day when this ceases to be the case.
The APC was previously set at $300/MWh, but has been temporarily increased to $600/MWh until June 2025 while a permanent determination is made by the AEMC. See also: Cumulative Price, Cumulative Price Threshold |
| Anomaly Correlation Coefficient | A forecast performance metric that assesses the association between forecast anomalies and actual anomalies – where the anomaly is calculated as the difference from a longer-term or typical expectation. |
| Anytime/Anywhere Energy | A term we coined in 2019 to describe the type of energy supplied by intermittent sources (e.g. solar and wind). We defined this term in order to discuss and conceptualise the distinct differences between this form of energy supply, and the ‘Keeping the Lights On’ Services. Occasionally we also refer to Anytime/Anywhere Energy as ‘Supply Service #1’.
See also: Keeping the Lights On Services |
| Australian Carbon Credit Units (ACCU) |
The ACCU scheme is a market-based policy designed by the Australian Federal Government as part of the Safeguard Mechanism, and is administered by the CER. It is intended to reduce emissions for large Australian industrial facilities.
A baseline is calculated for each large industrial facility (typically those emitting more than 100,000 tonnes of carbon dioxide equivalent (tCO2-e) per year are obligated to participate), which reduces each year in line with Australia’s emissions reductions targets. Facilities can manage excess emissions by purchasing ACCUs from registered suppliers of carbon abatement, where one ACCU represents one tCO2-e that would have otherwise been released into the atmosphere. Electricity generators have a special exemption from the Safeguard Mechanism, where instead of an individual baseline, a single ‘sectorial’ baseline is determined, and the emissions of individual generation facilities are not covered in the mechanism if they do not exceed the sectorial baseline. |
| Australian Energy Market Commission (AEMC) |
The market rule maker. In the context of the NEM, the AEMC’s main role is to manage and amend the National Electricity Rules (NER), in line with the National Electricity Objective (NEO). |
| Australian Energy Market Operator (AEMO) |
The market operator. In the context of the NEM, the AEMO’s main role is to independently operate and dispatch the electricity market in a reliable manner – leading to the common phrase that AEMO’s job is ‘to keep the lights on’. The AEMO also performs a similar role in the WEM and in Australia’s gas markets.
In international circles, the role of market operator is also referred to as the Independent System Operator (ISO). |
| Australian Energy Regulator (AER) |
The market regulator. In the context of the NEM, the AER’s main role is to monitor and assess network, wholesale, and retail compliance and performance. The AER also set the Default Market Offer (DMO) for retail contracts. |
| Australian Solar Energy Forecasting System (ASEFS) | A system established by the AEMO to provide forecasts and estimations of available supply for semi-scheduled solar farms. Also used in the UIGF process.
See also: Availability |
| Australian Wind Energy Forecasting System (AWEFS) | A system established by the AEMO to provide forecasts and estimations of available supply for semi-scheduled wind farms. Also used in the UIGF process.
See also: Availability |
| Availability | The maximum output of power (e.g. megawatts) that could theoretically be delivered at the end of an interval by a unit. The National Electricity Market Dispatch Engine (NEMDE) requires this information at each 5-minute dispatch interval to prevent it from giving a unit a dispatch target above what it can actually generate. This metric can then also be aggregated temporally to express it as a volume (e.g. megawatt-hours).
Availability is especially important for Semi-Scheduled units as the weather conditions (e.g. solar irradiance or wind speed) can change rapidly. Linton Corbet has explained the inputs and processes that determine a Semi-Scheduled unit’s availability in this WattClarity article from August 2023. |
| Availability Factor | A metric of how much energy a generator had available to generate in relation to its maximum capacity, over a specific period.
It is calculated as the ratio of the available energy that could have been produced, to the theoretical maximum the plant would have produced if running at full capacity for the entire period. It is typically expressed as a percentage. For wind and solar farms, the availability factor is typically a better indicator of natural sun or wind conditions compared to capacity factor – as it includes energy that was ‘lost’ or ‘spilled’ before entering the electricity system due to network or economic curtailment. See also: Capacity Factor |
| Bathtub Curve | A term to describe the typical trend of forced outages across the life of an asset, particularly a thermal unit – which is typically characterised by higher outage rates at the beginning and end of an asset’s life. Named for its resemblance to the outline of a bathtub. |
| Bi-directional Unit (BDU) |
A type of unit capable of both generating and consuming power – e.g. a utility-scale battery. Prior to the introduction of the BDU registration category in 2024, all operating units in the NEM had to be registered as either a generator or a load.
Note: Since the introduction of the BDU category, all pumped hydro facilities have maintained registration as separate DUIDs for the generation and load components thus far. See also: DUID |
| Bragawatts |
A tongue-in-cheek term used in the energy industry to describe overstated or unrealistic claims about the capacity, output, or size of a particular energy project. These exaggerated figures may be used in marketing materials but often lack substantiation in terms of actual performance or feasibility. The term is typically used humorously or critically to highlight the gap between bold claims and practical reality. |
| Causer Pays |
In economics, a causer pays system is a cost allocation approach where the entity responsible for causing a cost is directly charged for it, aligning financial accountability with the source of the expense. In the NEM, this term refers to the ‘FCAS Causer Pays’ scheme for FCAS regulation cost recovery, which is an example of such a system. Through this scheme, market participants are charged based on their contribution to frequency deviations using a complex methodology. The FCAS Causer Pays scheme in the NEM was first introduced in 2001, and is set to be replaced in June 2025 by a new ‘Frequency Performance Payments’ scheme. Harley Mackenzie explained the FCAS causer pays scheme in this WattClarity article from March 2017.
See also: FCAS Cost Recovery |
| Capacity Factor |
A metric of how much energy was produced by a generator in relation to its maximum capacity, over a specific period.
It is calculated as the ratio of the actual energy produced, to the theoretical maximum the plant would have produced if running at full capacity for the entire period. It is typically expressed as a percentage. A capacity factor can also be calculated for a load using a similar calculation, although this is sometimes referred to as a ‘Load Factor’. Capacity factor is a common metric in the electricity sector, for a variety of uses such as in system modelling, etc. In recent decades it has been increasingly used by others in order to ‘rank’ the performance of generators. This can be misleading for a range of reasons (e.g. negative price capture, FCAS costs, etc.) as was discussed by Dan Lee in this WattClarity article from March 2023. See also: Availability Factor |
| Capacity Market |
Many electricity markets around the world are considered ‘capacity markets’ wherein participants receive some form of market revenue or payment for the capacity and/or reserves they provide, sometimes in addition to the actual energy they produce.
In contrast, the NEM does not currently have a formal capacity mechanism in its physical market, hence it is classified as an ‘energy-only’ market. See also: Energy-only Market |
| Clean Energy Regulator (CER) | The regulator and administrator for several decarbonisaton programs in the energy sector. The CER is a statutory authority and is officially part of the Federal Department of Climate Change, Energy, the Environment and Water. The CER administer the LGC, STC and ACCU schemes. |
| Co-optimisation | The National Electricity Market Dispatch Engine (NEMDE) is designed to find the dispatch solution with the lowest overall cost to the market. Occasionally, this means that outcomes for the ‘energy’ commodity – e.g. a dispatch target for a unit – are impacted by outcomes in dispatching one or more FCAS commodities. The process of optimising these commodities in unison is referred to as ‘co-optimisation’. |
| Commodity | In the NEM there are 11 ‘commodities’ for each region – made up of the main ‘energy’ commodity, and ten separate FCAS commodities. Within each region, a price for each of these 11 commodities is determined at each 5-minute dispatch interval.
Sometimes these 11 commodities are also referred to as 11 distinct ‘markets’ or 11 distinct ‘services’. |
| Conformance Status | Conformance Status is part of the AEMO’s dispatch procedures and is assessed to ensure that units are following dispatch targets. Conformance status is measured through a five-tier index: 0 (Normal), 1 (Off-Target), 2 (Not Responding), 3 (Non Conforming Pending) and 4 (Non Conforming), and this index applies for all scheduled and semi-scheduled units. Non-scheduled units do not receive dispatch targets, hence are not assessed as part of this procedure.
Conformance status is distinct from compliance status. Marcelle Gannon discussed these key differences in this WattClarity article from December 2020. See also: Compliance Status |
| Congestion | In a power system, congestion occurs when there are bottlenecks in parts of the physical network. A part of the network (e.g a transmission line, a substation, etc.) is said to be congested when it is flowing at its limit and cannot facilitate the transfer of any additional electricity. |
| Connection Point Dispatch (CPD) Price | A term and metric we coined in 2019 to refer to the price that the DUID must ‘bid under’ in order to be dispatched at the Regional Reference Node (RRN). It reflects both (1) the physical price at the RRN and (2) the local adjustment due to impacts from constraints. |
| Constraint Equations; and Constraint Sets | The National Electricity Market Dispatch Engine (NEMDE) uses a Security-Constrained Economic Dispatch (SCED) model when generating a dispatch solution every five minutes. Constraint Equations are one of the core methods used in NEMDE to ensure that its solution does not violate network limits and other system security requirements. Constraint Equations are invoked within Constraint Sets.
See also: Security-Constrained Economic Dispatch |
| Contracts-for-Difference (CfD) |
A type of financial contract between two parties, somewhat common in electricity trading and investing. Under a two-way CfD, if the market price for the commodity falls below the agreed strike price, the generator receives a top-up payment; if the market price rises above the strike price, the generator pays back the difference, ensuring price stability for both parties.
Under a one-way CfD, if the market price falls below the strike price, the generator receives a top-up payment, but if the market price exceeds the strike price, the generator does not pay back the difference, benefiting only from upward market movements. Power Purchase Agreements (PPAs) are typically structured like a CfD. Michael Williams has explained this contract type in this WattClarity article from October 2018. |
| Commercial and Industrial (C&I) |
C&I is a common acronym in the utilities sector, and refers to a category of energy users (or facilities) that are larger than residential users. Commercial energy users can include office buildings, warehouses, etc. and industrial energy users can include mineral refineries, smelters, and other electricity-intense facilities. |
| Compliance Status | Compliance Status is terminology used by the AER in assessing whether registered market participants followed their obligations as set out by the National Electricity Rules (NER).
Compliance status is distinct from conformance status. Marcelle Gannon discussed these key differences in this WattClarity article from December 2020. See also: Conformance Status |
| Credible Contingency |
Credible contingencies are failures, or trips of a single key element or tightly linked group of elements that could reasonably occur in a single event, with unpredictable timing. Allan O’Neil explained this concept in this WattClarity article from January 2020.
See also: Non-Credible Contingency, N-1 |
| Cumulative Price; and Cumulative Price Threshold (CPT) | Cumulative Price is the rolling total of 7 days of trading prices for a commodity within a region. Since the introduction of 5-Minute Settlement in 2021, the cumulative price at any point in time can be calculated as simply the sum of the price in each of the 2,016 most recent dispatch intervals.
The CPT is a pre-defined amount set by the AEMC, which then acts as a trigger. Once the Cumulative Price surpasses the CPT, administered pricing then applies for the commodity within the region. See also: Administered Pricing |
| Curtailment | In its simplest definition, curtailment is the action of reducing or restricting something. For an electricity generator, curtailment occurs when the generator needs to reduce power output below what was otherwise available due to one or more economic or network factors.
See also: Economic Curtailment and Network Curtailment. |
| Default Market Offer (DMO) | The maximum price that a retailer can charge a standing offer customer each year. The DMO price also acts as a ‘reference price’. When advertising or promoting offer pricing, retailers must show the price of their offer in comparison to the DMO reference price.
It only applies to New South Wales, South Australia and South East Queensland. The AER sets the DMO for each area at the start of each new financial year. A separate, but somewhat related, Victorian Default Offer (VDO) applies in Victoria only. |
| Demand | Generally speaking, demand is the amount of electricity consumption that needs to be met by supply at any point in time (when talking about power) or over a period of time (when talking about energy). In the NEM there are three main measures of demand that are used, and widely published by the AEMO: (1) Underlying Demand, (2) Operational Demand, and (3) Market Demand. Paul McArdle has explained the complexities in measuring demand, and goes through each of these different measures in this WattClarity article from April 2018.
See also: Underlying Demand, Operational Demand, Market Demand |
| Demand Response (DR) |
A broad term used to describe a range of activities undertaken by electricity users to temporarily curtail consumption (or effectively lower net consumption from the grid through use of onsite generation) in response to some form of commercial incentive. Energy efficiency is the term used to describe activities that permanently curtail consumption. |
| Dispatch |
Dispatch refers to the real-time allocation and management of generation sources (and demand-side resources) to meet the grid’s demand reliably and cost-effectively. Dispatch and settlement are two terms that interrelated, as settlement financially reconciles the dispatch outcomes in the electricity market.
See also: Settlement, Dispatch Process |
| Dispatch Error; and Aggregate Dispatch Error (ADE) |
Dispatch Error is a formal calculation of the magnitude of deviation for a unit away from its Dispatch Target in a dispatch interval. It is calculated as Dispatch Error = Dispatch Target – Final MW. Dispatch Error can also be aggregated for groups of units – which AEMO does through the term ‘Aggregate Dispatch Error’ (ADE).
We use Dispatch Error as an input into calculating Raw Off-Target, and hence to derive the calculation for Conformance Status. |
| Dispatch Interval | The cadence at which the dispatch process is run. In the NEM, dispatch intervals have been always been 5-minutes long. |
| Dispatch Process | A central process that occurs every 5 minutes and coordinates the balance of electricity supply and demand in real-time. Ultimately an algorithm called the National Electricity Market Dispatch Engine (NEMDE) manages this process, taking several inputs (e.g. available generation, bids, network constraints, etc.) and publishing several outputs (e.g. regional prices, generator targets, interconnector flows, etc.) in the process. |
| Dispatch Target | At the beginning of each dispatch interval, each Scheduled and Semi-Scheduled unit will receive a dispatch target, indicating the level of power that the AEMO expects the unit to generating (or consuming) at for the end of the dispatch interval.
The implications and obligations of meeting this dispatch target are different for Semi-Scheduled units than they are for Scheduled units. Non-Scheduled units do not receive dispatch targets. |
| Dispatchable Reserve Margin (DRM) | The Dispatchable Reserve Margin is the difference between available supply and requisite demand. It is expressed as a percentage. Typically, anything less than a 20% reserve margin would be considered tight in most power systems around the world.
DRM is a similar, but different, metric to Instantaneous Reserve Plant Margin (IRPM), which instead expresses the surplus available generation, in relation to demand. See also: Instantaneous Reserve Plant Margin |
| Dispatchable Unit ID (DUID); and Units |
DUID is AEMO terminology, used to identify each ‘unit’ operating in the NEM. ‘Units’ are the atomic level to describe sources of generation (and some registered loads). For example, Bayswater Power Station is made up of four subcritical physical units that operate independently, and Unit 1 of the station has been assigned a DUID, which is ‘BW01’.
Units are largely a construct of the market – e.g. bidding occurs at the unit-level, and thus dispatch targets are published at the unit-level also. Historically a DUID represented a discrete physical unit within a power station, although there were some exceptions. For Semi-scheduled wind and solar farms, the whole plant is typically registered as a single DUID. See also: Station |
| Dispatchability; or Dispatchable |
A term to describe a generator or load, whose output can be directly controlled and adjusted up or down in real-time. Often this term is used as the antonym for weather-dependent intermittent generation resources such as wind and solar.
Generation resources that are typically considered to be ‘dispatchable’ include coal, gas, diesel, hydro, battery storage, etc. Confusingly, the AEMO gives every registered unit a DUID (Dispatchable Unit ID), even if they are not considered ‘dispatchable’ by the above definition. |
| Duck Curve |
A term to describe a typical shape of electricity demand throughout a single day in certain electricity grids, named after its resemblance to the outline of a duck’s back. A duck curve is typically characterised by a small morning peak, a midday dip, and a larger evening peak.
The shape of daily electricity demand varies depending on the region of the world, and changes over time, due to several demand-side factors (e.g. seasonal temperatures, rooftop PV uptake, economic shifts, energy efficiency programs, time-of-day tariffs, etc.). The term was coined by the California Independent System Operator (CAISO) in 2013, and demand in mainland NEM regions began exhibiting this duck curve shape from the mid-to-late 2010s. |
| Dunkelflaute |
A German word that loosely translates to ‘dark doldrums’, and refer to periods of low solar and wind production.
Extended periods of Dunkelflaute pose unique challenges for electricity networks reliant (or planned to be reliant) on solar and wind production, as they highlight the need for long-duration energy storage, demand response capability, and/or excess backup generation to maintain grid reliability. Dan Lee examined a two-day occurrence of Dunkelflaute in the NEM in this WattClarity article from December 2023. |
| Economic Curtailment; or Self-Curtailment; or Offloading | Economic Curtailment is available energy that is ‘lost’ or ‘spilled’ due to economic reasons. It’s a deliberate choice made by a generator to operate below their available generation at certain times – generally because the resulting spot price was below what they were willing to generate for. It is also referred to as ‘self-curtailment’ or ‘offloading’.
See also: Negative Price Avoidance, Network Curtailment |
| Economic Island | When an interconnector binds, economic islands form on either side as spot prices can separate (sometimes significantly).
See also: Interconnector |
| Electricity Statement Of Opportunities (ESOO) |
An annual report, and related modelling exercise, published by the AEMO around August each year. The report is intended to inform the market of opportunities to invest in generation and transmission. It contains scenario modelling for demand in each region over a 20-year time horizon, and a supply adequacy assessment over a 10-year time horizon. The report also contains a 10-year demand and supply adequacy forecast for the South West Interconnected System (SWIS) in Western Australia. |
| Energy Efficiency |
A term used to describe a range of activities undertaken by electricity users to permanently reduce the energy consumption of an appliance or system. Energy efficiency is distinct from demand response – aterm used to describe activities that temporarily curtail consumption.
See also: Demand Response |
| Energy Trilemma | A term to describe three competing priorities/trade-offs in energy policy: reliability (and also security), equity (e.g. affordability), and sustainability (e.g. carbon intensity). The World Energy Council coined this term, and have produced the ‘World Energy Trilemma Index’ annually since 2010. |
| Energy-only Market |
The NEM is an ‘energy-only’ market. This means that in the physical market, generators only receive revenue for the electricity they actually produce, and hence they receive no formal market revenue for the energy that sits ‘idle’ in reserve. In comparison, many other markets around the world have some form of ‘Capacity Market’ where units formally participate in a central auction and are paid revenues for the capacity or energy reserve that they provide.
See also: Capacity Market |
| Electrical Island |
When all (AC and/or DC) interconnectors linked to a region are offline, an electrical island forms. E.g. If QNI and Terranora were both offline simultaneously, QLD would be electrically islanded from the rest of the NEM.
See also: Economic Islanding, Frequency Islanding |
| Fast Start; and Fast Start Inflexibility Parameters (FSIP) | Some units, such as some gas peaking plants, take longer than a single 5-minute dispatch interval to start and ramp up to full load. The National Electricity Market Dispatch Engine (NEMDE) however only optimises for each discrete dispatch interval (i.e. it does not optimise outcomes any further into the future). In order to cater for the different start profiles of different technologies, the AEMO has a ‘Fast Start’ registration field for Scheduled units. FSIPs are the parameters used in bid submissions for the unit operator to define the flexibility/inflexibility profile of the unit for the AEMO. |
| Frequency Control Ancillary Services (FCAS) | A suite of ten commodities that are used to help maintain and support system frequency. Generators and loads can participate in the procurement of these commodities, and they are distinct from the main ‘energy’ commodity. |
| FCAS Cost Recovery | The costs of the FCAS commodities are recovered from wholesale market participants using three different methods. The costs of the Contingency Raise services are recovered by Scheduled and Semi-scheduled generators. The costs of Contingency Lower services are recovered by retailers, registered market customers and Scheduled loads. The costs of Regulation services are recovered by all wholesale market participants through the complex Causer Pays mechanism (but is due to be replaced by a new ‘Frequency Performance Payment’s method in June 2025). |
| FCAS Revenues |
FCAS revenues are paid to the suppliers for each individual commodity. Units capable of providing each FCAS service can register to do so, bid to provide, and thus are paid for the volume and periods when they are enabled. |
| Financial Market | The ‘financial market’ refers to the sale and purchasing of longer-term contracts and hedging instruments (e.g. futures, swaps, and options) that allow participants to manage risks associated with the ‘physical market’ (which is distinctly different). As the NEM is a Gross Pool market, such contracts and instruments are settled financially and do not involve the physical delivery of electricity.
See also: Physical Market |
| Five-Minute Settlement (5MS) | Five-Minute Settlement (5MS) was a large and consequential rule change that came into effect in October 2021. Prior to the rule change, settlement in the NEM occurred on a 30-minute cadence (i.e. a longer cadence than a dispatch interval), which was originally intended to somewhat smooth out the short-term volatility of dispatch prices for the settlement process. The introduction of 5MS changed the settlement cadence to 5-minutes, and essentially meant that trading prices became the equivalent of dispatch prices.
See also: 5/30 Issue, Dispatch, Settlement |
| Forecast Convergence | A term to describe a type of analysis that examines how forecasts evolve as they approach the actual outcome. Used to understand either the accuracy of the forecast after-the-fact, or to understand whether a forecast is changing or stabilising as an event approaches. |
| Forecasts | We’re progressively fleshing out a page here to explain the various different types of forecasts provided by the AEMO under the NEM Rules. |
| Frequency Island |
When one or more regions lose frequency synchronisation with the rest of grid (generally because an AC interconnector is offline), a frequency island forms. E.g. If Heywood is offline but Murraylink is online, SA is frequency islanded. Note: Tasmania is not frequency synchronised with the mainland, hence it is permanently frequency islanded.
See also: Economic Islanding, Electrical Islanding |
| GenCost |
An annual report published by the CSIRO which aims to inform the market and policy-makers about the costs of electricity generation and storage technologies (including LCOE estimations). The results of the GenCost report are also one of the inputs to the AEMO’s ISP. |
| Government-Owned Corporation (GOC) |
A corporation that is owned by a state or the federal government, but operates in a commercial manner. For example, a government-owned generator who competes against private corporations in the market.
Stanwell Corporation, Snowy Hydro, and Macquarie Generation are all examples of companies that are, or once were, GOCs participating in the NEM. |
| Grid Demand; or Operational Demand | One of three main measures of demand used in the NEM. Grid demand is the amount of electricity demand met by local Scheduled, Semi-scheduled, Non-scheduled wind and solar units with a capacity greater than or equal to 30MW, and imports for a region. It excludes the demand of local Scheduled loads, Non-Scheduled wind and solar units with a capacity less than 30MW, other non-scheduled generation units, and exempt generation (e.g. household rooftop solar systems).
The AEMO refer to Grid Demand as ‘Operational Demand’. Paul McArdle has explained the complexities in measuring demand, and goes through this measure in this WattClarity article from April 2018. See also: Demand |
| Gross Pool |
A type of electricity market design where all electricity generated and consumed must be traded through the physical market – with generators bidding their supply and all buyers purchasing at the market-determined price. Hedging and long-term contracts are negotiated in reference to what happens (or is predicted to happen) in the physical market. The NEM is a Gross Pool market.
See also: Net Pool |
| Inertia | In a power system, inertia refers to the stored kinetic energy from a large turbine or motor, and their tendency to maintain rotation in the short term. Inertia can be very valuable in the event of an unexpected contingency event, as this stored energy (which is typically only available for a few seconds) can help slow the rate of frequency changes while other mechanical and electrical systems within the power system can detect the disturbance and respond. Jonathon Dyson explained this concept and published analysis of inertia in the NEM in this WattClarity article from July 2023. |
| Instantaneous Reserve Plant Margin (IRPM) | A metric we coined in 2002, and is a real-time indicator of supply-demand tightness for a region, group of regions, or for the entire NEM. It is expressed as a percentage, and is calculated as surplus available generation divided by demand. |
| Integrated System Plan (ISP) | A bi-annual report published by the AEMO intended to provide a whole-of-system roadmap for efficient investment in the NEM. The ISP includes the presentation of an Optimal Development Path (ODP) which attempts to model the needed generation, storage, and network investments to transition the NEM to net zero by 2050. The ISP was first published in 2018. |
| Interconnectors | Interconnectors allow for the exportation and importation of electricity between regions. Interconnectors are not actually a single piece of physical electrical infrastructure, but instead, are a construct of the mathematical model that underpins the NEM (i.e. the NEM Dispatch Engine).
See also: Regions, Regional Reference Node, National Electricity Market Dispatch Engine |
| Islanding | An islanding event happens when a region (or a part of the grid) is separated from the rest of the network in one of three cases: (1) an economic islanding, (2) a frequency islanding, or (3) an electrical islanding.
See also: Economic Island, Frequency Island, Electrical Island |
| Keeping the Lights On Services | A term we coined in 2019 to describe the type of energy supplied by dispatchable energy sources. We defined this term in order to discuss and conceptualise the distinct differences between this form of energy supply, and intermittent ‘Anytime/Anywhere Energy’. Occasionally we also refer to ‘Keeping the Lights On Services’ as ‘Supply Service #2’.
See also: Anytime/Anywhere Energy |
| Large-Scale Generation Certificate (LGC) |
The LGC scheme is a market-based policy designed by the Australian Federal Government as part of the Renewable Energy Target (RET), and is administered by the CER. It is intended to provide an incentive for renewable energy production.
Utility-scale renewable generators (e.g. wind farms, solar farms, etc.) create one LGC for each MWh of eligible ‘renewable’ electricity they produce. The LGCs are tradable certificates that can be sold or banked once created. Under the RET, retailers and some other entities are obliged to surrender a certain number of LGCs each year. LGCs can also be sold to private buyers and third parties on the secondary market, which allows for corporations to meet voluntary renewable energy targets they might set themselves. |
| Levelised Cost of Electricity (LCOE) | A metric (also referred to as Long-Run Cost of Electricity) that estimates the average cost of generation over the life of the asset, usually expressed in $/MWh. LCOE is commonly used in investment and policy discussions, particularly for comparing different technologies against one another.
Although a very popular and often discussed metric in the wider public, several real-world complexities means that any ‘apples-to-apples’ comparison of generation technologies is likely to lead to an oversimplification of what characteristics of generation provide value to the system as a whole. Allan O’Neil has discussed some of these complexities in this WattClarity article from July 2017. |
| Load Shedding | A controlled and intentional reduction of certain end-consumer loads (or aggregations of end-consumer loads), in order to prevent the entire power system from overloading or collapsing. |
| Locational Marginal Pricing (LMP); and Nodal Market |
Not currently used in the NEM, but LMP describes a market design where price formulation and many other market functions occur at each connection point. Electricity markets with LMP are referred to as ‘nodal’ markets. LMP is used in several electricity markets around the world such as in Texas, New Zealand and Singapore.
In contrast, the NEM has a ‘zonal’ market design where price formulation and other market functions occur in relation to a designated reference node in each zone (although in the NEM, zones are referred to as ‘regions’). In a zonal model, all other connection points act as a spoke from a designated node. See also: Regional Reference Node; Zonal Market, Regions |
| Long-Run Marginal Cost (LRMC) |
The incremental cost incurred by a generator to produce one additional unit of output when all inputs, including capital, are variable. Unlike the SRMC, the LRMC accounts for both operating costs and long-term costs such as capital investment, maintenance, and equipment replacement.
In practice, calculating LRMC is more complex, as it involves projecting future costs, demand, and technological changes. The LRMC is often used in planning and investment decisions to ensure that adequate capacity is built to meet long-term demand in a cost-effective manner. See also: Short-Run Marginal Cost |
| Looking Up a Vertical |
A phrase we coined in 2016 with the introduction of our Forecast Convergence widget in ez2view. We use this phrase to describe the current forecast, and all former forecasts, for a single point in time.
See also: Forecast Convergence |
| Low Reserve Condition (LRC); or Lack of Reserve (LOR) Condition |
The AEMO uses a three-level warning system alerting the market to actual, or forecast, periods of Low Reserve Condition: LOR1, LOR2 and LOR3. |
| Market Demand; or Scheduled Demand; or Total Demand | One of three main measures of demand used in the NEM. Market demand is the amount of electricity demand needed to be met by local Scheduled and Semi-scheduled units, and/or imports for a region (net of the output of Scheduled loads). It therefore excludes demand met by non-scheduled units and other exempt sources of generation (e.g. household rooftop solar systems).
The AEMO refer to Market Demand as ‘Scheduled Demand’, and this measure of demand also matches the ‘Total Demand’ field in the AEMO’s Market Management System (MMS). Paul McArdle has explained the complexities in measuring demand, and goes through this measure in this WattClarity article from April 2018. See also: Demand |
| Market Direction | Under the National Electricity Rules (NER), the AEMO has the power to require a registered participant “to do any act or thing if AEMO is satisfied that it is necessary to do so to maintain or re-establish the power system to a secure operating state, a satisfactory operating state, or a reliable operating state”. There are several clauses, conditions and compensation procedures associated with market directions, which are outlined in Clause 4.8.9 of the NER. |
| Market Intervention | Under the National Electricity Rules (NER), the AEMO has the power to directly intervene with market outcomes in one of two ways; (1) issuing a direction to a unit or groups of units; or (2) by exercising the RERT. There are several clauses, conditions and compensation procedures associated with market directions, which are outlined in Rule 3.1.2 of the NER. |
| Market Management System (MMS) | A system that facilitates the transferring of data from the AEMO to each market participant. The MMS Data Model defines the interface of this data transfer through tables, indexes and primary keys. |
| Market Notice (MN) | Official communications by the AEMO sent to market participants, and delivered through the MMS. |
| Market Price Cap | An amount that sets the maximum level the price in a region can reach through the dispatch process.
It is regularly adjusted, typically every financial year in order to keep up with inflation. |
| Market Price Floor | An amount that sets the lowest level the dispatch price can reach through the dispatch process. This is also the lowest price that a volume can be bid at.
For the energy commodity, the price floor is -$1,000/MWh and for the FCAS commodities, the price floor is $0/MWh. |
| Market Suspension | Under the National Electricity Rules (NER), the AEMO is able to suspend the market under certain conditions. |
| Marginal Loss Factor (MLF) |
MLFs are the method that the NEM uses to account for losses that occur during the transportation of electricity through the network. Each connection point in the NEM receives an MLF from the AEMO each financial year, which itself is a singular number typically between 0.6 and 1.2 – supposed to represent the marginal electrical losses that are projected to occur to/from that connection point over the next financial year. The MLF gets applied in settlement and dispatch, and as such, it is an important factor for the financial performance for generators and loads.
Conceptually, MLFs are just a market signal to provide a disincentive for developers to build new generation or new loads in locations that will increase losses in the system. Generally speaking, a high MLF is a signal for more generation to be built nearby, and a low MLF is a signal for more load to be built nearby – although there are some noteworthy examples where MLFs flipped dramatically in successive years. Dan Lee has explained this concept in this WattClarity article from June 2022. |
| Merchant Generator; and Semi-Merchant Generator |
A generator is considered ‘fully merchant’ if the electricity it generates is sold entirely to the market without a Power Purchase Agreement (PPA) or other long-term financial contract. Fully merchant generators therefore assume market price risks, earning revenue based on fluctuating and volatile spot market prices.
It is more common for a generator to be ‘partially merchant’ or ‘semi-merchant’ (sometimes also said to have ‘merchant exposure’) where a portion of their revenue comes from a long-term arrangement and a portion is based on direct market outcomes. |
| N-1 |
The NEM, like many other electricity markets around the world, has been designed so that the market (and electricity network) can continue operating without major disruption even if a single credible contingency event occurs (e.g. trip of a single generator, trip of a single transmission line, etc.). This standard is designed to maintain grid stability and prevent cascading failures by requiring sufficient redundancy during normal operations.
This redundancy is referred to as ‘N-1’ (phonetically said ‘N Minus One’) as the N stands for ‘Total Number of Components’ in the system. Hence N-1 refers to the ability of the system to operate normally with one fewer component than the total. See also: Credible Contingencies, Non-Credible Contingencies |
| National Electricity Laws (NEL) |
The overarching laws that establish the government and enforcement framework for the NEM, and the regulation of electricity networks. The NEL sets out the roles of major market bodies (i.e. the AEMO, AEMC and AER) and the sets the relevant framework for the National Electricity Rules (NER).
The NEL is a schedule of the ‘National Electricity (South Australia) Act 1996’, but is applied as law in each participating jurisdiction. |
| National Electricity Market (NEM) |
As stated in the name, the NEM is first and foremost, an electricity market. However, the term is also interchangeably used to describe the underlying physical electricity network/grid.
Whilst the NEM manages the delivery of electricity supply to the majority of the Australia’s population, it is not fully ‘national’. Aside from some remote parts of these states/territories, the NEM covers Queensland, New South Wales, Victoria, South Australia, Tasmania and the Australian Capital Territory. The electricity networks in Western Australia and the Northern Territory are not part of the NEM. |
| National Electricity Market Dispatch Engine (NEMDE) |
A software algorithm managed by the AEMO to run the dispatch process every 5 minutes. NEMDE uses Security-Constrained Economic Dispatch (SCED) linear optimisation methods to mathematically calculate how demand can be met at the lowest possible cost in each region, subject to physical and network constraints.
See also: Security-Constrained Economic Dispatch |
| National Electricity Objective (NEO) |
A guiding statement for decision-making on market design and policy decisions with respect to the National Electricity Rules (NER) and the National Electricity Laws (NEL), and by extension the NEM. As of January 2025, the current NEO 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:
|
| National Electricity Rules (NER) |
The set of rules that governs how the NEM operates and sets out the obligations of market participants. The AEMC is the body that manages new rules and makes amendments to the NER. |
| Negative LGC | This has become a short-hand way of referring to a particular type of bid by Semi-Scheduled units. It is equal to $0 minus the spot price of an LGC (or the contracted price of an LGC if forward-sold). For example, if the spot price of an LGC is $60/MWh, it might make sense for a semi-scheduled unit to bid at -$60/MWh (i.e. negative LGC), as this represents their Short-Run Marginal Cost (SRMC).
See also: Large-Scale Generation Certificates |
| Negative Price Avoidance |
In the NEM, spot prices can go negative. When this happens, it effectively means that generators are paying to generate electricity, and loads are getting paid to consume electricity. In certain situations, this might be the most economical outcome in the short-term. But more commonly, generators take some actions to attempt to avoid being exposed to negative prices.
See also: PPA, Negative LGC |
| Negawatts; and Negawatt-hours |
A informal term used to describe a unit of power (Negawatt) or energy (Negawatt-hour) saved due to energy efficiency or demand response programs. In other words, it describes the amount of reduction in energy consumption that would not have otherwise occurred without the program or initiative.
See also: Wholesale Demand Response Mechanism |
| NEM Time |
Since the dispatch process occurs every 5 minutes, 24 hours a day, 365 days a year, it makes practical and logistical sense for the NEM to ‘run’ on a singular consistent time zone. This also ensures that all related market data is timestamped uniformly in all regions regardless of daylight savings and other time zone differences.
NEM time is officially UTC+10. It does not adjust with daylight savings time, making is consistently aligned with time zone of Queensland. |
| Net Pool |
A type of electricity market design where buyers and sellers are allowed to trade electricity through bilateral contracts outside of the market, and only the residual/uncontracted electricity is traded through the pool. The NEM is not a Net Pool market, and is instead a ‘Gross Pool’ market where all electricity must be traded through the pool.
See also: Gross Pool |
| Network Curtailment; or Forced Curtailment | Network curtailment occurs when one or more network constraints limit a unit’s output to levels lower than what it had available to generate. For that reason, others have referred to this as ‘forced curtailment’ because it is imposed on the unit operator. |
| Next Day Public |
A phrase to describe how certain datasets such as bid details, dispatch targets, etc. are not publish publicly in real-time, but then become publicly visible once the trading day ends.
See also: Trading Day |
| Non-Credible Contingency | Non-Credible Contingencies are simultaneous or near-simultaneous failures involving multiple elements not normally at risk from a single triggering event. Allan O’Neil explained this concept in this WattClarity article from January 2020.
See also: Credible Contingency |
| Non-Scheduled Category | A category of registration for generation (and some load) units, where the unit does not directly participate in the central scheduling process, and hence has fewer market obligations. This is generally reserved for smaller units with a maximum capacity below 30 MW. |
| Normal Operating Frequency Band (NOFB) | The acceptable range of frequency under regular conditions. In the NEM, the NOFB is 49.85Hz and 50.15Hz. |
| North West Interconnected System (NWIS) | One of two main electricity networks in Western Australia, the other being the SWIS. The NWIS is the smaller of the two, and is located in the Pilbara region, serving major mine sites in the region along with the towns of Port Headland and Karratha. |
| Off-Target ; and Aggregate Raw Off-Target | In the creation of our GRC2018 (released 31st May 2019) we included analysis of a the extent to which individual generators might be Off-Target. We’ve refined the calculation, and have also used it in aggregate terms across collections of units, terming it ‘Aggregate Raw Off-Target‘. |
| Over-Constrained Dispatch (OCD) Process | On relatively rare occasions, the National Electricity Market Dispatch Engine (NEMDE) can not provide a dispatch solution that meets demand whilst satisfying all invoked constraint equations. The OCD process allows for the relaxation of constraint equations in a prioritised manner. Each constraint equation has a Violation Penalty Factor (VPF) which is intended to reflect the potential consequences of relaxing the constraint equation. Allan O’Neil has briefly described this process in this WattClarity article from February 2024. |
| P5 |
A type of pre-dispatch forecast published by the AEMO every 5 minutes as part of the MMS. It provides ‘projected dispatch’ data at a 5-minute granularity for one hour ahead (i.e. the current interval and the next 11 dispatch intervals). P5 forecast includes projections for demand, prices, price sensitivity scenarios, interconnector flow, etc. |
| P30 |
A type of pre-dispatch forecast published by the AEMO every 30 minutes as part of the MMS. It provides ‘projected dispatch’ data at a 30-minute granularity for the period until the end of the next trading day (i.e. 4am the next day). The P30 forecast includes projections for demand, prices, price sensitivity scenarios, available generation, UIGF, etc. |
| Physical Market |
The ‘physical market’ or ‘spot market’ refers to the real-time operation and dispatch of electricity, where generators supply power to meet demand every five minutes. This market ensures the physical delivery of electricity to consumers, maintains system reliability, and is also how spot prices are determined. As the NEM is a Gross Pool market, all electricity must be traded through the physical market (and hence settled there first). Most of the analysis you will read about on WattClarity revolves around what is happening in the physical market.
The physical market is distinct from the ‘financial market’ which refers to the longer-term contracts and hedging instruments that allow participants to manage risks associated with the physical market. See also: Financial Market |
| Power Purchase Agreement (PPA) | A long-term contract between an electricity generator and a customer (e.g. a retailer, government, or company) during which time the generator agrees to sell energy to the customer at a pre-negotiated price. Occasionally PPAs also include the sale of the LGCs that the facility generates.
Such agreements are commonplace particularly for wind and solar farms, as they can be crucial in order for the project’s developer to attain finance. See also: Contracts-for-Difference |
| Price Energy Harvest | A metric that helps explain how effective a unit is at capturing different energy prices.
The NEM is one of the most volatile electricity markets in the world, and spot prices can fall anywhere over a very wide price range. Because of this fact, the return a generator can make is significantly dependent on being able to generate during the (relatively rare) times that the spot price is very high, and also on avoiding (as much as possible) periods where the price is negative. |
| Price Setter | The price setting process is quite complicated – on WattClarity there are several articles published to help explain. These are all linked together here.
In Part 3 of our Generator Report Card (released 31st May 2019) we a view of how often a particular DUID has been heavily involved in setting the price in a given region. |
| Primary Frequency Control (PFC); or Primary Frequency Response (PFR) |
Individual generator control systems are set to respond locally to low frequency by increasing steam, fuel or water inputs so as to increase power output (providing a countervailing push on the frequency see-saw), and to high frequency by reducing power output. Synchronous generators typically deliver PFR through “governor” settings. Allan O’Neil has explained this concept in this WattClarity article from November 2020. |
| Rebidding | This Glossary section includes this page about the Rebidding Process, and AER Rebidding Guidelines – including what it means to be (in our view) “Not Well Formed”. |
| Region |
A pricing zone in the NEM. Each region represents a subsection of the physical network, and each is managed by a single Transmission Network Service Provider (TNSP). It is the role of the TNSP to plan, provide and manage the physical transmission network for their region, which includes working closely with the AEMO to ensure the integration of the physical grid with the energy market.
There are five regions in the NEM: QLD, NSW, VIC, SA and TAS which loosely represents each of those underlying states. |
| Regional Reference Node (RRN) |
A designated reference node (i.e. a connection point) for each region, typically near its demand centre. The current RRNs are West Sydney (NSW), Thomastown (VIC), South Pine (QLD), Torrens Island (SA) and George Town (TAS).
In reality, a large utility-scale electricity system is a complex point-to-point network. Some other markets around the world use LMP to more accurately reflect this reality in their market design. The NEM however, instead uses a hub-and-spoke model for the purposes of price setting, determining interconnector flows, accounting for electrical losses, etc. In the NEM’s hub-and-spoke model, the RRN acts as the hub, and DUIDs act as the spokes. Allan O’Neil has discussed this concept in this WattClarity article from March 2019. See also: Locational Marginal Pricing |
| Regional Reference Price (RRP); or Spot Price; or Dispatch Price |
When people talk about ‘spot prices’ for a region, they are usually referring to the region’s RRP. As stated in its name, it is a reference price, and represents the cost of electricity at the Regional Reference Node (RRN).
Whilst the wider public generally talk about RRPs when discussing what is happening to prices in the physical market – it is important to note that generators do not get paid the RRP directly (due to MLFs, auxiliary factors, etc.) and do not always dispatched when they bid below the RRP (due to constraints, etc.). |
| Reliability | Energy reliability is distinct from energy security, although many inside of our industry make the mistake of confusing the two. In relation to the NEM, the AEMC define reliability with the following definition: “A reliable power system has enough generation, demand response and network capacity to supply customers with the energy that they demand with a very high degree of confidence.”
See also: Security |
| Reliability Standard; and Interim Reliability Measure (IRM) |
An agreed-upon standard, usually expressed as a percentage, that reflects the desired level of reliability that should be provided by generation, demand response, and transmission. In the NEM, the current reliability standard aims for there to be no more than 0.002% of expected USE in each region within a given financial year – which implies that the market should provide enough supply (and adequate transmission) to cater for at least 99.998% of demand each year.
The IRM is a similar, but tighter, standard currently set at 0.0006% of expected USE. The IRM was introduced in 2020 and is a long-term but temporary standard. If the IRM is projected to be breached for a region over a financial year, then it acts as a trigger for the Retailer Reliability Obligation (RRO) and the Interim Reliability Reserve (IRR). |
| Reliability and Emergency Reserve Trader (RERT) | The Reliability and Emergency Reserve Trader (RERT) is a mechanism used by AEMO to help ensure reliability during periods of forecast supply shortfalls. It allows the AEMO to negotiate and procure additional reserve capacity from demand response providers and generators outside of the market. RERT can be activated under three types: long notice, for events forecast at least ten weeks in advance; medium notice, for events between ten weeks and seven days away; and short notice, for events with less than seven days’ notice. The tender process and procurement procedures differ for each of the three types.
Typically loads that are not market participants (such as a large mineral refinery or smelter) and non-registered generation (e.g. standby diesel generators) are the main sources of RERT. |
| Renewable Energy Certificate (REC) |
A tradable certificate that represents proof that one MWh of electricity was generated from a renewable energy source. In Australia, LGCs and STCs are forms of Renewable Energy Certificates, and form part a suite of policies related to the Renewable Energy Target (RET).
See also: Large-Scale Generation Certificates, Small-Scale Technology Certificates |
| REC Registry |
An online platform administered by the Clean Energy Regulator (CER) for managing the creation, tracking, and trading of Renewable Energy Certificates (RECs).
See also: Renewable Energy Certificates, Large-Scale Generation Certificates, Small-Scale Technology Certificates |
| Renewable Energy Target (RET) |
An Australian Federal Government policy designed to encourage the generation of electricity from renewable sources and reduce greenhouse gas emissions. It sets specific targets for renewable energy generation, supported by a system of tradeable Renewable Energy Certificates (RECs) to incentivise investment in clean energy projects.
See also: Renewable Energy Certificates |
| Retailer Reliability Obligation (RRO) |
A complex administrative and accounting framework overseen by the AER, which has the objective of forcing all load to be contracted, supposedly providing the consistent cashflow to enough supply to provide reliability. Ben Skinner has described and explained the mechanism in this WattClarity from February 2024. |
| Scheduled Category | An explanation of how the Scheduled category works is provided here in this Glossary. |
| Scheduling Process |
The specific part of the dispatch process that involves determining which generators will be dispatched (and at what target) in each five-minute interval to meet ‘Market’ Demand. |
| Security; or Security of Supply |
Energy security is distinct from energy reliability, although many inside of our industry make the mistake of confusing the two. In relation to the NEM, the AEMC define security with the following definition: “The power system is secure when technical parameters such as voltage and frequency are maintained within defined limits. To maintain frequency the power system has to instantaneously balance electricity supply against demand.”
See also: Reliability |
| Security-Constrained Economic Dispatch (SCED) |
A type of mathematical model used (in the NEM, and in some other electricity markets around the world) to generate the most economic dispatch solution while considering key system operation constraints, such as frequency management, thermal limits of transmission lines, etc.
See also: National Electricity Market Dispatch Engine |
| Semi-Scheduled Category | An explanation of how the Semi-Scheduled category works is provided here in this Glossary. |
| Self-Forecasting | We’re progressively fleshing out a page here to explain how self-forecasting of semi-scheduled unit availability is used. |
| Settlement | Settlement refers to the financial process of reconciling payments between market participants for electricity supplied or consumed, based on market prices and quantities traded. Settlement and dispatch are two terms that are interrelated, as settlement financially reconciles the dispatch outcomes in the electricity market.
See also: Dispatch |
| Settlement Interval |
The cadence in which the settlement processes occur (e.g. the cadence of trading prices, etc.). In the NEM, settlement intervals were 30-minutes up until October 2021, when the Five-Minute Settlement rule change came into effect. Since then, they have been changed to 5-minutes to align with the cadence of dispatch intervals.
See also: Five-Minute Settlement |
| Short-Run Marginal Cost (SRMC) |
The incremental cost incurred by a generator to produce one additional unit of output in the short-term. As such, the SRMC excludes capital costs and other long-term costs.
For example, the calculation for the SRMC of a coal power station might include the fuel cost of coal, as generating additional electricity in the short-term requires burning more coal. In reality, the SRMC curve for a thermal generator is non-linear as there are other factors that impact SRMC depending on the level of power output – such as minimum operating levels, turbine efficiency, etc. Energy-only markets like the NEM, have historically been designed for units to bid their volume in a way that represents their SRMC. See also: Long-Run Marginal Cost, Energy-only Market |
| Small-scale Technology Certificate (STC) | The STC scheme is a market-based policy designed by the Australian Federal Government as part of the Renewable Energy Target (RET), and is administered by the CER. It is intended to provide an incentive for small-scale renewable energy installations, and the scheme complements the Large-scale Generation Certificate (LGC) scheme.
Individuals and businesses earn STCs when they install eligible systems (e.g. rooftop solar panels, solar water heaters, air source heat pumps, etc.). One STC is created for each MWh of electricity produced (or saved) during the lifetime of the system, or the until the end of the scheme. Unlike LGCs, STCs are created upfront based on the projected/estimated performance of the system at the time of installation. Under the RET policy, retailers and some other entities are obliged to surrender a certain number of LGCs and/or STCs each year. |
| (Measuring) Solar | Here’s some information about three general sizes of solar PV and how it is ‘measured’. |
| Solar Correlation Penalty | A term we coined in 2018 to compliment the ‘Wind Correlation Penalty’ effect that we observed two years prior. The Solar Correlation Penalty is our way of describing how the NEM is relatively narrow in terms of longitude, hence VWAPs suffer across solar farms in the NEM due to solar irradiance patterns being highly correlated in almost every location (and also being highly correlated to the yield of rooftop solar).
See also: Wind Correlation Penalty |
| Spark Spread | For gas-fired power plants, the spark spread is the difference between the price that the generator receives for electricity, and the cost of the gas used to produce it. |
| South West Interconnected System (SWIS) |
One of two main electricity networks in Western Australia, the other being the NWIS. The SWIS is larger in both geographic size and number of customers and is centered around the state capital of Perth. |
| Station ID; and Stations | In the NEM, stations are the level above ‘units’ when describing sources of generation (and some registered loads). For example, Bayswater Power Station is one station and has a Station ID of ‘BAYSW’, and is made up of four subcritical physical units that operate independently, and Unit 1 of the station has been assigned a DUID, which is ‘BW01’.
Bidding and many elements of the dispatch process does not occur at the station-level, instead occurring at the unit-level. See also: Units |
| Strategic Reserve |
Some other electricity markets around the world (e.g. Germany, Belgium, Finland, etc.) maintain a long-standing ‘strategic reserve’ to assist with ensuring reliability, often in lieu of a formal capacity market. Under this approach, specific power stations (often older or less competitive ones) or other resources are excluded from participation in the physical market, and are only dispatched when there is a risk of supply shortfalls. The reserve is often maintained by the system operator and funded through separate mechanisms, and not through direct market participation.
The RERT mechanism in the NEM operates in a loosely similar manner, but it is debated whether it is a true ‘strategic reserve’ as the contracting of resources for the RERT is generally event-specific or triggered only under certain conditions, hence it is generally not part of system/capacity planning. |
| Synchronous Condenser (Syncon) |
A rotating machine similar to a synchronous generator (e.g. coal, gas, hydro, etc.), but it does not produce electricity. Instead, it can provide grid stability services such as inertia, voltage control, and reactive power support. |
| System Strength |
In an electricity grid, this refers to the ability of the power system to maintain stable voltage levels and recover quickly from disturbances. The AEMO have defined, that from a technical perspective, system strength “indicates inherent local system robustness, with respect to properties other than inertia”. Synchronous machines that are connected to the grid (e.g. coal, gas, hydro, syncons, etc.) contribute to system strength inherently, non-synchronous inverter-based resources (e.g. wind, solar, batteries, etc.) do not inherently provide system strength. Allan O’Neil has explained this in more depth in this WattClarity article from February 2021. |
| Trading Day |
In the NEM, a trading day runs for 4am to 4am. This is also occasionally referred to as a Market Day. |
| Trading Prices |
Prior to the introduction of Five-Minute Settlement (5MS), trading prices were calculated as the average of the dispatch price in the x6 dispatch intervals in each half-hour period. Trading prices were used for settlement purposes e.g. ultimately determining generator market revenues, etc. Since the introduction of 5MS, trading prices are now published on 5-minute cadence and are now the equivalent of dispatch prices. |
| Unconstrained Intermittent Generation Forecast (UIGF) | The ‘energy constrained’ capability for production from a registered wind farm or a solar farm (or an aggregation of them). |
| Underlying Demand; or Native Demand |
One of three main measures of demand used in the NEM. Underlying demand is the amount of electricity demand met by local Scheduled, Semi-scheduled and Non-scheduled units, exempt generation (e.g. household rooftop solar system) and imports for a region. It excludes the demand of local Scheduled loads.
The AEMO refer to Underlying Demand as ‘Native Demand’. Paul McArdle has explained the complexities in measuring demand, and goes through this measure in this WattClarity article from April 2018. See also: Demand |
| Unserved Energy (USE) | Expected USE is a measure for the expected amount of end-consumer demand not met due to insufficient supply (and/or insufficient transmission) in each region, over a given year. The current reliability standard sets expected USE to be no more than 0.002% each financial year. |
| Value of Lost Load (VOLL) |
A dollar amount intended to represent the estimated cost of a disruption in electricity supply for consumers, and expressed in $/MWh. In the NEM, the market price cap is closely related to VOLL. |
| Volume-Weighted Average Price (VWAP); and Load-Weighted Average Price (LWAP) |
This is a metric that’s not as widely used as the VWA Revenue – but has some particularly useful applications when seeking to compare price capture at different units without masking the results by the separate dynamic of transmission losses. It was used in the GSD2019 for this purpose.
The VWA Price is described here. It’s synonymous with LWA Price. |
| Volume-Weighted Average Revenue (VWAR); and Load-Weighted Average Revenue (LWAR) |
This metric is a more traditional metric useful for considering the various components of revenue (e.g. Price Capture (incl Constraints & Response to Negative Price), and Losses) at different units. The VWA Revenue is described here.
It’s synonymous with LWA Revenue. |
| Weighted Average Cost of Capital (WACC) | A metric often used as a parameter in financial models for proposed development projects. It is the average cost of capital for a project (or company) from all sources, including forms of equity and debt. It represents the average rate that the owner should expect to pay to finance its assets. |
| Wholesale Demand Response Mechanism (WDRM) | A mechanism introduced to the NEM in October 2021. It allows for energy users (or aggregations of energy users) to bid their reductions of energy use into the market, therefore allowing them to participate in the central scheduling process.
See also: Negawatt |
| Wind Correlation Penalty | A term we coined in 2016 to describe how VWAPs suffer across wind farms in the NEM due to the majority of wind capacity being built in a relatively small geographic area (e.g. South Australia and Western Victoria), hence energy production is highly correlated to mutual wind yield patterns. This lack of diversity in wind harvest patterns therefore subjects all wind farms in a location to declining VWA Revenues for each incremental wind farm added to a location.
See also: Solar Correlation Penalty |
| Winter Pinch | A term we coined in 2023 to describe how the daily curve for solar yield for north-facing panels on a fixed axis gets ‘pinched’ in winter compared to summer, due to Australia’s southerly location.
Most utility-scale solar farms in the NEM employ single-axis tracking where the panels track east-to-west each day, but a small number of solar farms (and many rooftop systems) have their panels fixed in a northerly direction. In relation to Australia’s location, the sun’s trajectory appears lower and further north in winter compared to summer. The result of this is that north-facing panels have a similar peak in yield in the middle of the day in winter compared to summer, but a steeper incline and decline in the shoulder periods. Dan Lee described and visualised this effect in this WattClarity article from March 2023. See also: Winter Shrink |
| Winter Shrink | A term we coined in 2023 to describe how the daily curve for solar yield for east-to-west single-axis tracking panels ‘shrinks’ in winter compared to summer, due to Australia’s southerly location.
Most utility-scale solar farms in the NEM employ single-axis tracking where the panels track east-to-west each day, but a small number of solar farms (and many rooftop systems) have their panels fixed in a northerly direction. In relation to Australia’s location, the sun’s trajectory appears lower and further north in winter compared to summer. The result of this is that panels that track east-to-west have a ‘shrunken’ profile in winter. Dan Lee described and visualised this effect in this WattClarity article from March 2023. See also: Winter Pinch |
| Zonal Market |
A zonal market describes an electricity market design where price formulation and many other market functions occur for an entire zone, as opposed to occurring at each connection point. In a zonal model, all other connection points within a zone act as a spoke from a designated node – therefore revenues, electrical losses, etc. are calculated in reference to a designated node.
‘Zonal markets’ are the opposite of ‘Nodal Markets’, but can have any number of zones. The NEM has five zones, referred to as ‘regions’. See also: Locational Marginal Pricing, Regional Reference Node |
If you spot any mistakes in the table above, or have suggestions for additions then:
(a) Please give us a call on +61 (0)7 3368 4064 ; or
(b) Provide your feedback here.