The Australian government has opened a public consultation on a package of draft laws and rules to implement the core recommendations of its review of National Electricity Market (NEM) wholesale market settings.
The package includes the Electricity Services Entry Mechanism (ESEM), a new Market Making Obligation (MMO) and a framework for price-responsive resource visibility.
The Department of Climate Change, Energy, the Environment and Water (DCCEEW) is responsible for developing the package and for working with NEM jurisdictions to translate the review’s recommendations into legislative provisions and rule changes.
The Department released the National Electricity Market Wholesale Market Settings Regulatory Reforms consultation paper on 11 September, following agreement from the Energy and Climate Change Ministerial Council (ECMC), excluding Queensland, to release the draft package for feedback.
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The consultation covers the draft National Electricity (South Australia) (Wholesale Market Liquidity and Investment) Amendment Bill 2026 and the draft National Electricity Amendment (Wholesale Market Liquidity and Investment) Rule 2027, with submissions open until 23:59 (AEDT) on 13 October 2026.
An updated package is due to return to ECMC in December 2026 for agreement on the Bill, with introduction to the South Australian Parliament targeted for the first half of 2027.
The reform package traces back to a review the Australian government commissioned in November 2024, examining how NEM wholesale settings should evolve to support renewables and storage investment as the Capacity Investment Scheme (CIS) winds down following its final tenders in 2027.
An independent expert panel delivered its final report in December 2025 with 12 recommendations, which ECMC, excluding Queensland, agreed to in principle before jurisdictions settled on an implementation pathway in March 2026.
ESEM designed to bridge the gap between long-term project finance and short-term buyer preferences
The ESEM is intended to address what the consultation paper describes as a structural mismatch between new electricity sellers’ need for long-term project finance and electricity buyers’ preference for short-term contracts.
The mechanism will support three core services to be defined in the National Electricity Rules (NER). This includes zero-emissions bulk energy, shaping and firming, the last of which is the category most directly relevant to battery storage and other dispatchable assets.
An ESEM Administrator (ESEMA), appointed by ECMC, will set an anticipated entry trajectory and run procurement processes, while a separate Financial Management Entity (FME) will act as the enduring counterparty to all ESEM contracts, later offsetting those positions back to market through a process the paper terms “contract recycling.”
The two roles may be held by the same appointed entity.
Every two years, the ESEMA will publish a 15-year anticipated entry trajectory for each region, based on targets nominated by participating jurisdictions, covering emissions-reduction goals, additional reliability targets, and scheduled generator-exit assumptions.
That long-term trajectory is then translated into a shorter-term tender plan that guides individual procurement rounds. The first ESEM procurement round is anticipated in late 2027, subject to ECMC approval of the regulatory package.
Contract types to be used under the ESEM and MMO will be developed through an industry-led contract co-design process convened every four years by the ESEMA, with input from a Contract Co-Design Working Group (CCDWG) comprising specialists from across the energy sector.
A pilot version of this process, conducted during the 2025 NEM Review, has already fed into an initial contract co-design process established in May 2026, run jointly by DCCEEW and AusEnergy Services Limited (ASL), with the Australian Energy Regulator (AER) observing.
The ESEM is designed to absorb several existing jurisdictional schemes once operational, including New South Wales’s Long-Term Energy Service Agreements (LTESA) under its Electricity Infrastructure Roadmap and South Australia’s Firm Energy Reliability Mechanism (FERM), with transitional arrangements set out in the National Electricity Law (NEL) to prevent overlapping obligations.
The Australian Capital Territory (ACT), which has met its 100% renewable energy target since 2020 through reverse auctions under its own scheme, does not intend to transition to the ESEM.
Market Making Obligation targets contract liquidity, starting in South Australia
The MMO is designed to improve liquidity, accessibility and price transparency in electricity derivatives markets.
It will require certain large market participants to post minimum volumes of both bids and offers on transparent trading platforms for standardised contracts.
The obligation will apply to suppliers of ESEM services above a specified size threshold in each NEM region, initially through cap contracts for firming services and baseload swaps for bulk energy and shaping, before transitioning to contracts defined through the industry-led co-design process.
The AER will administer the MMO and set its detailed operational parameters, including minimum contract volumes and bid-ask spread limits.
The MMO will commence first in South Australia, applying to cap contracts for firming, and is intended to replace the state’s existing FERM scheme.
The obligation will not apply in Tasmania or Queensland, though ministers in those jurisdictions retain the flexibility to opt in.
Alongside the ESEM and MMO, the package also establishes rule-making powers to support a mandatory framework for price-responsive resource (PRR) visibility, covering aggregations of consumer energy resources (CERs), small-scale storage assets and large flexible loads.
The Australian Energy Market Operator (AEMO) has been developing a Market Visibility Framework since publishing an approach paper in May 2026, supported by a Stakeholder Advisory Group, with detailed design recommendations due to ECMC by December 2026.
The reform package arrives against a backdrop of a NEM already being reshaped by rapid storage deployment.
Battery storage contracts in Australia have continued shifting away from rigid physical tolling arrangements toward more commoditised, interchangeable products, while the Australian Energy Regulator has separately found the NEM is “transforming from one market into many different markets” within each region, with battery storage increasingly setting the wholesale price as coal generation’s role recedes.
That shift was visible in AEMO’s Q2 2026 Quarterly Energy Dynamics report, which found renewable energy supplied 42.1% of NEM generation, a Q2 record, as wholesale prices fell to their lowest Q2 average since 2020, even as battery price spreads compressed sharply amid rapidly scaling installed capacity.
AEMO’s 2026 Electricity Statement of Opportunities has separately found that while the NEM’s overall reliability outlook has improved, continued investment in system security services will be needed as the share of inverter-based resources grows, a distinction the ESEM’s firming service category is intended to help address directly, alongside the separate system security and inertia challenges created by retiring synchronous coal generation.
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