⚖️ “The Physical World Has Changed” – Nelson’s Review Rejects Capacity Market, Proposes Smarter Reforms
Aug 6
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The long-awaited Nelson Review has finally dropped — and instead of blowing up the National Electricity Market (NEM) design, it’s proposing smart refinements to bring it into the modern renewable era. No capacity market. No market overhaul. Just sharper tools for a more complex energy landscape.
Led by respected economist Dr. Tim Nelson, the four-member panel has chosen evolution over revolution — offering nine key recommendations designed to update how the NEM handles investment, dispatch, and risk in a clean energy future.
🧠 Why No Capacity Market?
Despite growing pressure from some sectors, the Nelson Review has firmly ruled out a capacity market — a model where power providers are paid just to be available.
Instead, the panel is backing a more flexible, transparent contract-based approach to support wind, solar, batteries, and consumer-led energy. “The physical world has changed,” Nelson said, “and the contract world needs to catch up.”
🔄 Introducing the ESEM: A Smarter Path to Investment
At the heart of the reforms is the proposed Electricity Services Entry Mechanism (ESEM) — a system to issue long-term, tradable contracts for bulk energy, shaping (storage/flexibility), and firming (reliable backup).
This move aims to solve the long-standing “tenor gap” — the mismatch between short contracts and long project financing needs. Through reverse auctions run by AEMO Services, developers could secure multi-year contracts that boost investor confidence and unlock financing.
And better yet, these contracts can be resold into the market, creating a circular economy of energy risk management tools.
💡 Contracts Over Capacity: Flexibility for the Future
Why is this smarter than a traditional capacity market?
Standardised contracts reduce complexity and legal costs
Greater transparency encourages longer-term energy deals
Technology-neutral support for batteries, hydro, demand response, and more
Encourages market-driven innovation, not central planning
Nelson believes this approach provides “internally consistent signals” across short-term, medium-term, and long-term market horizons — something the NEM has sorely lacked.
🏭 Consumers + Industry = Grid Resilience
One standout focus of the review is unlocking the value of consumer energy resources (CERs) — think rooftop solar, batteries, EV charging, and flexible manufacturing.
Rather than hiding in the background, these resources should participate in the market, says the panel. Visibility and participation from households and large industrials alike could drive:
Lower energy bills
Better demand forecasting
Grid stability
Long-term emissions reductions
🧩 9 Key Recommendations at a Glance
Keep the spot market as the core of NEM, but update it to reflect tech changes.
Make behind-the-meter resources visible and encourage participation.
Target public funding for CERs that can support the grid.
Investigate auto-bidding and battery visibility challenges.
Review market price caps for long-term relevance.
Introduce always-on market making for key contracts.
Expand market data transparency for better long-term planning.
Launch the ESEM mechanism for standardised long-term contracts.
Align policies, tech innovation, and regulation with the new model.
🔎 Early Reactions: Market Welcomes Common-Sense Reform
Experts and industry bodies are praising the review for its balanced, forward-looking vision.
Stephanie Bashir of Nexa Advisory applauded the focus on accelerated investment signals and consumer inclusion.
The Clean Energy Council noted the “creative and novel solution” of using competitive tenders and market-traded contracts for clean energy services.
🌱 EServices4U: Powering Your Transition with Confidence
The energy market is evolving — and so should your home or business. At EServices4U, we’re already aligned with the smart energy future the Nelson Review is pushing for.
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With expert guidance and zero-obligation consultations, we’re helping Australians embrace a cheaper, cleaner, and smarter energy system.
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