Australia’s energy system is in transition - and so are its markets. At the end of 2024, a review of the NEM and its wholesale market settings was kicked off by a four-person panel led by Tim Nelson. The first recommendations of the now commonly known “Nelson Review” were released in August 2025, for consultation before final recommendations are released at the end of the year.

​For our analysis of the review’s initial recommendations, read our article here.

We were recently joined by Tim Nelson on Transmission to discuss the review, including:

• The progress and recommendations of the review so far;
• What international markets and reforms influenced the panel;
• Why decisions were made to stick or twist with different elements of the market;
• How the Electricity Services Entry Mechanism (ESEM) will support new renewable and battery energy storage capacity.

Key takeaways

​1. The NEM’s risk profile is fundamentally changing

The review’s starting assumption is that the energy-only market isn’t “broken,” but the risk contours have shifted. Both demand and supply are now weather-dependent, making price outcomes less dependent on coal generation and more linked to renewable dynamics.

A key message is: don’t dampen volatility but manage it better. This leads to some of the review's key recommendations.

2. A major visibility push is coming for distributed resources

Behind-the-meter batteries, VPPs, and other price-responsive loads are becoming too large to be “invisible” on the grid. This is causing real distortions in operational demand forecasting and dispatch.

The review signals that visibility will be mandated before dispatchability, walking back initial speculation about mandating that small resources bid like generators.

3. Derivatives are being modernised with new products designed to match renewable-era risks

The panel is clear: swaps and caps were built for coal, not for a system dominated by wind, solar, and batteries. A new suite of standardised shaping and firming contracts is being co-designed with industry, and updated every few years.

This matters because:

• It increases liquidity for risk management;
• It gives batteries more reliable revenue hedging instruments; and
• It reduces basis risk between operations and contract structures.

This is one of the biggest under-discussed reforms with a direct financial impact on BESS assets.

4. The ESEM (Electricity Services Entry Mechanism) directly targets the tenor gap

The biggest barrier to new investment in the NEM is the lack of long-term buyers. Retailers expect falling costs, so they avoid long PPAs, but investors need long-term certainty to finance assets.

The ESEM:

• Requires each project to secure at least 3 years of in-market contracting;
• Then, it allows it to bid for a long-term underwriting contract via reverse auction;
• Uses derivative contracts, not revenue floors, to warehouse risk temporarily; and
• Let's developers buy back the contract and shift to merchant/other strategies later.

This is a lighter-touch, more flexible version of CIS/LTESA and will include shaping and firming services.

5. Frequent ESEM auctions and greater transparency will improve price discovery

Tim emphasises that the current goal is for ESEM auctions to run frequently, with prices published across rounds, to maximise competition.

​“We think these processes should be pretty frequent… we want to create competition across rounds, not just competition within these processes.”

Pricing transparency isn't offered by CIS and LTESA today. This would mean:

• Investors can benchmark whether bids are competitive;
• Storage operators can see expected value in future years;
• Developers can build multi-asset pipelines with confidence; and
• Financiers get a market-tested set of prices rather than bespoke PPAs.

This is arguably one of the most important developments for investor clarity in the NEM.

6. Market price settings (MPC, CPT) may evolve

The review suggests future differentiation of price caps depending on system conditions. Rather than one market price cap, the system could move toward condition-based price limits — which would shift BESS arbitrage value during volatile events.

A four-year cycle of reviewing MPC/CPT structure and form (not just values) is proposed.

This is a pathway to:

• Longer high-price events (better for long-duration storage and peaking generation);
• More tailored scarcity pricing; and
• Better alignment with renewable risk distributions.

7. A formal market-making obligation (MMO) is coming

The panel is unapologetic: liquidity in the derivatives market is a problem, especially in South Australia. A new market-making obligation is likely to survive consultation, even if modified. This should improve liquidity for derivative contracts traded on the ASX.

For battery operators, more liquidity means improved transparency and access to hedging opportunities by trading products such as caps.

8. There will be an implementation roadmap in the final report

Tim is clear that this isn’t just a conceptual review. The panel is required to lay out a step-by-step plan for ministers:

“we're required to publish an implementation roadmap… putting forward a timeline for… passage of legislation, passage of rules, running the contract co-design process…”

So the final report won’t just say what to do, it will also say roughly when and in what order:

• Legislation to establish the ESEM and related frameworks;
• Rule changes for things like derivative products, market-making obligations, visibility requirements, and price-setting processes;
• Standing up / running the contracts co-design process on a recurring cycle; and
• Actually running ESEM auctions using the new contract designs.

9. Tim’s indicative timing: the ESEM could launch by the end of 2026

Ultimately, the first recommendations from the review could be implemented in 2026. Tim gives a pretty explicit timing view:

“once that roadmap is considered by ministers, we think that there's no real reason that you couldn't have all of this up and running by the end of next year or the beginning of the year after.”

​Tim’s argument is: this is evolution, not a new institution from scratch. The machinery already exists. and can be repurposed. He points specifically to existing CIS/LTESA delivery teams at ASL who can run the ESEM process, and to similar teams at the AER that can pivot to an MMO focus.

However, he’s careful not to present this as a locked-in timetable; it’s conditional on political sign-off.

So: fast is possible, but only if ministers are convinced the ESEM + associated reforms genuinely lower system cost and de-risk the transition.