In 2020, I was asked by NSW Treasury to support the establishment of the NSW Electricity Infrastructure Roadmap and to ultimately lead AEMO Services.
My career had been spent leading global financial markets and commodities businesses, and while this had included running some large electricity trading businesses, I was a newcomer to the debates that surround the National Electricity Market (NEM).
A particularly vexing debate was whether the NEM delivered efficient outcomes for electricity consumers, or whether government intervention was required.
I had spent my career building businesses in some of the most competitive, dynamic and effective markets in the world. It was surprising to hear the NEM defended as a well-designed, efficient market. To outsiders like myself there was a self-congratulatory bias – so long as the NEM was no longer owned or dominated by government interests it was ‘efficient’.
Testing the NEM against basic principles for effective, efficient markets identified material failings. Did people in Australia’s electricity markets really know what a truly efficient market looked like, or how to get there?
Energy transition is offering an exciting possibility to evolve towards a market that meets the basic criteria:
Balance, with numerous counterparties on both sides of the market; Diversification, where market participants have different stimulus for participation; and Free Agency, which includes the ability to elect not to participate in a market for a period of time.
Can anyone argue that the breadth of new entrants to our market are not creating better balance, creating consumer value through competition?
Would you argue that the emerging mix of innovative new technologies, particularly batteries, are not increasing diversification? (important because it massively reduces the predictability of competitor pricing and timing of supply, which greatly disrupts the comfortable pricing of an oligopoly).
And how exciting are the developments increasing consumer choice, giving them greater free agency in the market. The latest home battery adoption rates are phenomenal.
I am not suggesting that the NEM has not delivered benefits – I am suggesting that it can do better and deliver more for the consumers that it serves. It is straightforward to point to the NEM’s successes – since deregulation in the early 1990s, it has attracted billions of dollars in investment—approximately $7 billion in generation and $4.4 billion in transmission—while delivering internationally competitive industrial and household rates for delivered electricity.
Yet if market efficiency is judged by outcomes for consumers—affordability, stability, fairness—the picture becomes murkier. In global financial markets like foreign exchange (FX), efficiency implies consumer neutrality, minimal excess rents, and fair pricing. Measured against a truly efficient market like the global FX markets, Australia’s electricity market falls short.
The Australian Energy Regulator (AER) has repeatedly flagged strategic rebidding by generators to exploit rivals’ outages.
For example, in May 2024, AGL and EnergyAustralia notably increased bids following unplanned coal plant shutdowns, triggering a price cap in New South Wales. This behaviour, although technically compliant, prioritises profits over consumer welfare and evidence of market failures (e.g. market power) or inefficiency.
Similarly, households have borne the brunt of complexity and inefficiency in retail markets. The Australian Competition and Consumer Commission (ACCC) found over 80% of households overpaid by around $238 annually due to barriers associated with outdated energy plans.
These issues clearly indicate significant divergence from textbook market efficiency. Although electricity trading dominates many aspects of the NEM, consumer access to safe hedging and genuine retail competition remains inadequate, reinforcing inefficiencies.
How could anybody claim that markets with these characteristics are efficient?
Fortunately, the energy transition presents a once-in-a-generation opportunity. Falling costs for renewables, now constituting around 32% of NEM generation, coupled with distributed energy resources (DER), create conditions for greater consumer choice, price responsiveness, and market competition.
And with the billions being spent globally on Energy R&D, I confidently predict that further exciting innovations are just around the corner.
How will our regulators and lawmakers capture this generational opportunity? Regulation can both enable and inhibit efficiency. Current market rules still allow price manipulation—rebidding during outages remains legal, despite clear consumer harm.
Distribution network regulation continues under the “building block” model, potentially diluting cost-saving incentives.
Tariff complexity and network charges can also outpace innovation’s efficiency gains for end-users. We are seeing market power distort tools like smart meters and virtual power plants (VPPs) to provide benefits to gentailers rather than consumers.
Regulators, including the AER, AEMC, ACCC, and the Energy Security Board, must deepen their understanding of evolving market fundamentals and anchor policy accordingly.
NSW lent in to this when they legislated that its ‘Consumer Trustee’ (ASL) must above all else, “act in the long-term financial interest of consumers” Would a similar regulation for all the Energy Market bodies help further with consumer balance? Here below, some further suggestions for prioritisation
- Market rules reform: Curtail extreme rebidding, enhance transparency, and require robust rebid justification.
- Smart meter rollout: Achieve near-total small-customer adoption by 2030.
- Demand-side market design: Fully integrate mechanisms like WDRM and two-sided markets.
- Retail market simplification: Enable clear comparison of plans to reduce consumer overpayments.
- Network regulation incentives: Shift towards productivity-based benchmarking to lower distribution/transmission costs.
Australia’s electricity markets were “better than what came before” in an era of centralised, fossil-fuel-based systems—but this narrowly defined view of efficiency no longer serves consumers.
The energy transition offers a rare opportunity to retrofit markets for genuine efficiency: more competition, greater transparency, real consumer choice, and responsiveness.
However, without adaptive regulation, these benefits risk being compromised. Regulators must pivot swiftly to preserve the gains of innovation, ensuring that electricity markets genuinely serve the consumers they were designed for.
Paul Verschuer was the inaugural Chief Executive of AEMO Services (ASL) and an Executive General Manager at AEMO. He spent close to a decade on the Westpac Institutional Bank Executive Team leading the global markets business and subsequently held several senior government roles, including Deputy Secretary, Markets, in the Federal Treasury.
