Use the right jurisdiction
The NEM and Western Australia's WEM have distinct rules, settlement and adequacy arrangements. The WEM includes a Reserve Capacity Mechanism; the NEM does not use that same framework. Start with site location and registration before applying a market rule.
The lesson
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01Locate the connection before choosing the market
Australia is not one electricity market
The NEM serves interconnected eastern and south-eastern systems. The WEM operates on Western Australia's South West Interconnected System (SWIS). Western Australia and the Northern Territory are outside the NEM. A state name alone is not enough to classify an isolated system or a particular connection.
| Example | Starting point | Confirm next |
|---|---|---|
| Melbourne grid-connected factory | NEM context | Exact connection, participant arrangements and applicable Victorian requirements |
| Perth facility confirmed on the SWIS | WEM context | Connection conditions, applicable WEM arrangements and WA requirements |
| Remote WA mine on an isolated microgrid | Do not assume WEM | Actual system, operator, contracts and local obligations |
| Northern Territory site | Outside the NEM | Its actual network and Northern Territory arrangements |
Check your understanding
A project brief says only 'Western Australia'. Can you select a WEM revenue model with confidence?
Show reasoning
No. First confirm whether the connection is on the SWIS and what arrangements apply.
A geographical label is an initial clue, not a complete market boundary. An isolated mine and a SWIS-connected facility cannot be assumed to share settlement or participation arrangements.
02Separate the physical system, market design and jurisdiction
Three layers in the same project
- 01
Physical system
Connection point, network capacity, reliability, losses and control requirements.
- 02
Market arrangements
Registration, scheduling, settlement, services and applicable capacity arrangements.
- 03
Jurisdiction
Which legislation, rules, regulators and contractual obligations apply to this activity and location?
Copy the method; re-establish the inputs
An energy-balance calculation can be reused across projects because MW × hours remains MWh. A revenue model cannot simply inherit another market's price series, service eligibility or capacity assumptions. Reuse the spreadsheet structure, then independently verify each market-dependent input.
| Usually reusable method | Must be checked for the new project |
|---|---|
| Dimensional analysis and energy balance | Meter boundary, losses and interval definitions |
| Cash-flow reconciliation | Settlement reference, contract terms and payment categories |
| Sensitivity analysis | Local constraints, timing and plausible ranges |
| Evidence register | Applicable instrument, version, commencement and decision owner |
Check your understanding
Does an AEMO logo on two documents establish that the same procedure applies in the NEM and WEM?
Show reasoning
No. Check each document's scope, system, participant type and effective date.
The publisher identifies the source. Applicability depends on the document and activity, not on the logo alone.
03Distinguish energy, capacity and service revenue
Different payment categories reward different things
The WEM includes a Reserve Capacity Mechanism. That is not a reason to assign capacity income to every WA asset or copy it into a NEM model. Eligibility, certification, obligations and the applicable mechanism must be established for the particular project.
| Illustrative component | Calculation basis | Question before modelling |
|---|---|---|
| Energy | MWh × A$/MWh | Which intervals, reference price and metered quantity? |
| Capacity | Eligible capacity × applicable payment basis | What capacity is recognised, for what period and with what obligations? |
| System service | Qualified service quantity × applicable remuneration | Can the asset qualify, deliver and avoid conflicting commitments? |
| Retail or hedge contract | Actual contractual settlement formula | Who pays what, against which reference and volume? |
Check your understanding
A teaching model assumes 10 MW of recognised capacity and an invented A$50,000/MW-year payment. What annual gross capacity revenue follows?
Show reasoning
A$500,000 per year under that assumption only.
10 × 50,000 = 500,000. This is not a quoted WEM payment or a claim of eligibility. Do not multiply the result by 8,760 hours again; the payment basis already includes a year.
04Compare two locations without creating a false single price
A two-site customer portfolio
Assume a Melbourne facility consumes 20 MWh at a modelled energy-only cost of A$90/MWh and a SWIS-connected Perth facility consumes 30 MWh at A$110/MWh over the same study period. These are synthetic, like-for-like cost assumptions—not current prices or actual settlement rules. Exclude network charges, taxes and losses.
Reconcile dollars first
Melbourne energy cost
20 × A$90 = A$1,800
Retain the location and pricing assumption.
Perth energy cost
30 × A$110 = A$3,300
Do not silently apply the Melbourne price to this volume.
Portfolio average
(A$1,800 + A$3,300) ÷ (20 + 30) = A$102/MWh
This is a consumption-weighted analytical summary, not a new market clearing price.
Result: Total modelled energy cost is A$5,100 for 50 MWh. The unweighted average of A$100/MWh understates the total by A$100.
Check your understanding
A template applies A$90/MWh to both sites. What error does it make?
Show reasoning
It calculates A$4,500 instead of A$5,100: an A$600 understatement.
The 30 MWh Perth volume is underpriced by A$20/MWh. A shared business owner does not make two locations share a settlement reference.
05Choose evidence that actually applies to the question
| Question | Starting evidence | Check before use |
|---|---|---|
| Which system or market? | System and market overview, then connection documentation | Actual location and connection, not just a state label |
| How is a payment calculated? | Applicable settlement documentation and contract | Product, quantity, time period, currency and effective version |
| What capacity obligations apply? | Current mechanism and participant documentation | Eligibility, dates, performance requirements and transitional rules |
| Why did a price change? | Market data, outages, constraints and event reports | Matched timestamps, region and information available at the time |
A document can be official and still be the wrong evidence
A draft reform, a historical report and an effective procedure have different uses. Record the title, publisher, scope, publication date, version and effective date where supplied. A later report may explain an event but was not information available to a trader before that event.
Check your understanding
An official consultation proposes a new settlement method. Should your current base case use it as an existing obligation?
Show reasoning
No. Keep the current applicable method in the base case and label the proposal as a scenario where relevant.
Proposal, approval and commencement are separate milestones. Confirm transition arrangements before treating a change as effective.
06Deliver a market-boundary brief before building the model
The work product
Prepare a one-page brief for the Melbourne and Perth facilities, plus a third proposed remote WA site whose network is not yet specified. Your job is to establish what can be modelled now and what must remain unresolved—not to sound certain about incomplete information.
A useful analyst handover
Classify the known sites
Melbourne uses NEM context. The explicitly SWIS-connected Perth site uses WEM context. Keep the remote site unresolved pending connection evidence.
Separate revenue or cost components
List energy, network, contract and any applicable service or capacity components without assuming eligibility.
Calculate and reconcile
Show 50 MWh, A$5,100 and A$102/MWh for the two-site synthetic example. Retain separate source assumptions.
Make uncertainty actionable
Name the missing connection evidence, who can provide it and which part of the model must wait.
Result: A strong brief distinguishes a checked fact, a declared assumption and an unanswered question.
Check your understanding
What should you write for the remote WA site's market before its connection is confirmed?
Show reasoning
Unresolved—not automatically WEM, and not NEM.
Explain which system and contractual evidence is required. A deliberate blank with an evidence owner is more useful than a confident but unsupported classification.
Watch the explanation
Key terms in plain English
- NEM
- National Electricity Market: the interconnected wholesale electricity market in eastern and southern Australia. It does not include Western Australia or the Northern Territory.
- WEM
- Wholesale Electricity Market: the market serving Western Australia's South West Interconnected System, with arrangements distinct from the NEM.