supagridGenerators in the NEM do not receive fixed prices for their output. Instead, they submit bids that specify the quantity of electricity they are willing to supply at different price levels. AEMO uses these bids, together with network and security constraints, to determine the least-cost dispatch every 5 minutes. Understanding how bidding works is essential for interpreting dispatch outcomes, merit order, and price formation.
Each scheduled generating unit submits an offer comprising price bands, enablement limits, ramp rates, and unit commitment parameters. NEMDE stacks these offers from lowest to highest price to form the merit order and selects the combination that meets demand at lowest cost.
The 10-band offer structure
Energy offers in the NEM use up to 10 price bands. Each band specifies a price ($/MWh) and a quantity (MW). Bands are ordered from lowest to highest price. When NEMDE dispatches a unit, it selects output by summing the quantity in bands up to and including the band that clears. A unit can bid different prices for different output levels, allowing them to reflect increasing marginal cost as output rises (e.g. heat rate degradation, fuel costs).
Bands can have zero quantity, and the same price can appear in multiple bands. The offer structure allows generators to signal willingness to run at a loss in some bands (e.g. negative prices for renewables or must-run plant) or to withhold capacity at high prices when they expect scarcity.
Enablement and ramp rates
In addition to price bands, each unit submits enablement minimum and maximum (MW). When the unit is committed and dispatched, its output must lie between these limits. The enablement min prevents uneconomic part-load operation; the enablement max caps output within technical capability. NEMDE respects these limits when building the dispatch solution.
Ramp rates limit how quickly a unit can change output between intervals. They ensure that dispatch targets are achievable in practice and prevent unrealistic swings. Fast-ramping units (e.g. hydro, batteries, open-cycle gas) can respond quickly to price signals; slow-ramping units (e.g. coal) have tighter ramp constraints.
Unit commitment
NEMDE decides not only how much each unit produces but also whether it should be on or off. Unit commitment considers start-up costs, minimum run time, minimum down time, and availability. A unit that is off incurs no energy cost but may need to be started to meet demand; a unit that is on incurs start-up cost and minimum run-time obligations. The co-optimisation of energy and ancillary services (FCAS) also affects which units are committed.
Fast-start units can start within minutes and are often used to meet short spikes in demand or prices. They may receive fast-start uplifts when they set price, reflecting the cost of rapid commitment. Slower thermal plant typically runs in blocks with longer minimum run times.
Rebidding
Generators can change their bids at various times before dispatch. Rebid timelines are defined by AEMO: for example, pre-dispatch runs use bids submitted by certain deadlines, and real-time dispatch can incorporate late rebids within defined windows. Rebidding allows generators to respond to changed conditions—weather forecasts, outages, demand updates—but can also be used strategically.
AEMO publishes historical bid data (anonymised in some cases) so analysts can study how bidding behaviour evolves. Understanding rebid patterns helps interpret why dispatch or prices changed between pre-dispatch and actual dispatch.
Price caps and floors
The NEM has administered price caps and floors. The cap (currently $16,600/MWh) limits the maximum spot price; the floor (‑$1,000/MWh) limits how negative prices can go. These bounds apply to both energy and FCAS. Generators can bid outside these bounds, but settlement prices are truncated. During extreme scarcity, the admin cap can be reached; during oversupply (e.g. high solar, low demand), prices can reach the floor.
Administered price caps can also be invoked by AEMO during emergencies when the market cannot clear normally. Understanding these bounds helps interpret extreme price outcomes.
Offer structure at a glance
The table below summarises the main elements of a typical energy offer. FCAS offers follow a similar structure but apply to regulation and contingency services.
| Element | Description |
|---|---|
| 1–10 | Price bands ($/MWh) and corresponding quantity (MW) for each band |
| Enablement min/max | Minimum and maximum MW that can be dispatched when the unit is on |
| Ramp rates | Maximum rate of change of output (MW/minute) when increasing or decreasing |
| Unit commitment | Start-up costs, minimum run time, and availability |
Merit order and price formation
NEMDE stacks all energy offers from lowest to highest price to form the merit order. It dispatches units in merit order until demand is met, subject to constraints. The marginal unit—the last one dispatched to meet demand—sets the regional price. All dispatched units in that region receive the same price, regardless of their bid (pay-as-cleared). Units with bids above the clearing price are not dispatched (unless required by constraints).
Constraints can cause the merit order to be violated: a cheaper unit may be constrained off while a more expensive unit runs. Analysing binding constraints alongside bids helps explain such outcomes.
Related
Dispatch & Pricing explains how dispatch and prices are determined. FCAS describes ancillary services bidding and co-optimisation. For AEMO variable definitions, see AEMO variables.