AEMO should be split in two, transmission put in public ownership in new push for overhaul of “failed” NEM

Australia’s energy market operator should be split in two and the national transmission network brought back under a public ownership model, according to a new report that is calling for a “fundamental overhaul” of the National Electricity Market.

The analysis, published this week by The Australia Institute, is authored by University of Queensland economics professor John Quiggin, a long-time critic of the National Electricity Market (NEM) for – as he put it almost 10 years ago in 2017 – consistently failing to achieve its purpose.

The purpose of the NEM, which was created by federal and state governments in the 1990s, was to provide a reliable, secure energy supply at the best possible price for consumers by coupling competitive markets with robust regulatory frameworks.

In 2026, Quiggin remains unconvinced that the NEM and its main controlling authority, the Australian Energy Market Operator (AEMO), are any closer to getting the balance right. Rather, he argues, the transition to renewables has made matters worse.

“Australia’s transition to a low-emissions electricity system has exposed the structural weaknesses of the national energy market,” Quiggin says.

“After decades of patchwork reform, the elegant design of the original NEM is almost invisible under all those tweaks.”

The “central tension,” says Quiggin, is that AEMO is required to perform two incompatible roles: market operation and system management.

“These functions obey different logics,” the report says. “Market operation is rule-bound and reactive. System management is forward-looking and discretionary. Combining them has blurred accountability and encouraged continual patching of the original design.”

But the fix for this is straightforward, according to Quiggin.

AEMO should be split into two bodies: a rule-bound market operator responsible solely for dispatch and settlement under transparent rules, and; a national grid and system authority with responsibility for planning, transmission integration, reliability procurement, and long-term contracting.

“The first would be a pure pool market operator,” the report explains. “Its role would be limited to running the spot market, dispatching bids according to published rules and settling prices and quantities transparently. It would not procure reserves, issue directions, plan networks, underwrite investment, or manage emergencies.

“The second would be a national grid and system manager with an explicit public mandate. As with AEMO, the national grid manager would be jointly owned and run by the Commonwealth and states.

“This body would handle all ancillary and reliability functions now bolted onto the market, plan and operate the transmission system, nationalise transmission networks, and manage future extensions as anticipatory public infrastructure rather than reactive private investments.

“It would contract generation capacity through long-term power purchase agreements with both public and private generators, allocating risk explicitly rather than hiding it in price volatility.

“Responsibility for default retail offers would also sit with the system manager, along with a formal mandate to assess the performance of retail competition.”

Quiggin is not the first to make this call, but AEMO has argued strongly that it should retain both function, saying the dual roles are common around the world, and others also argue that Australia has enough enough institutions already that crowd and create confusion in the market.

See: “It is paramount:” AEMO says system and market operator functions must be kept together

Beyond the splitting of AEMO, the Quiggin report also argues that transmission should be consolidated under public ownership within the grid authority.

It further argues for generation to be operated under a mixed public–private model, reforming distribution, keeping public ownership available as a long-term option, and retain retail competition, but with default pricing treated as a public obligation linked to system costs.

This approach does not abandon markets, the report argues, but rather corrals them to tasks they perform well.

“The market can be left to do what markets do best,” says Quiggin: “match supply and demand in the short run.

“The larger task of planning and operating a national grid, and the process of transition to clean energy, is a job for a single national authority, overseen by state and federal governments.

“If Australia wants a clean, reliable electricity system, with reasonable prices, reform is necessary and urgent.”

Quiggin is not alone in pushing for major reforms to the NEM or to AEMO. An independent NEM Review last year made nine major recommendations, ultimately determining “not to throw out the market – but to reinforce its strengths.”

And in February, federal Labor launched a major review of the “governance arrangements” of AEMO, after it was agreed to at the latest Energy and Climate Change Ministerial Council (ECMC) meeting in December.  

According to the Terms of Reference for the review, transparency and accountability at AEMO will come under scrutiny, and questions asked about whether the body needs to streamline its processes.

The review will also evaluate and make recommendations to Energy Ministers on whether changes should be made to the formal corporate legal structure of AEMO, including its associated entities, “and if so, the options compared to status quo, acknowledging AEMO’s evolving role and increasing influence as system planner, market operator and policy delivery body.”

The review will also rake over AEMO’s membership and corporate structure and consider whether a new statutory establishment under the South Australian Parliament should provide the governing legislative framework for AEMO and its board.

Currently, membership of AEMO is split between government (60%) and industry (40%). According to its 2025 annual report, around 1,800 people work for AEMO across Australia, including engineers, scientists, economists, digital specialists and corporate support.

Also under review will be AEMO’s budget, any “perceived conflicts of interests” within the organisation, possible measures to enhance transparency, board appointment processes, and how AEMO receives and responds to instructions/directions from energy ministers.

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