supagridDispatch and pricing are the mechanisms that determine how electricity is produced and sold in the NEM. They link generators, units, and regions into a real-time market that balances supply and demand while respecting physical and technical constraints.
Understanding dispatch and pricing is crucial to interpreting market outcomes, recognising patterns, and making sense of volatility.
How Dispatch Works
Dispatch is the process of deciding which generators should produce electricity at each 5-minute interval.
AEMO determines dispatch by:
- Collecting all generator bids for the interval
- Considering the physical constraints of the network
- Calculating the combination of generators that meets forecast demand at the lowest possible cost
- Assigning each unit a dispatch target
Dispatch is calculated every 5 minutes. Targets can change frequently based on demand, network conditions, or generator availability.
Bidding in the Market
Generators influence dispatch through bids. Each unit submits a bid specifying:
- The quantity of electricity it can supply at different prices
- Minimum and maximum output limits
- Ramp rates and other operational constraints
Bids are ranked from lowest to highest price to form the merit order, which determines which units are dispatched first.
A generator's bid price does not always equal the price it receives. Payment is determined by the regional market price.
Price Formation
The price in each region is set by the marginal generator—the last unit dispatched to meet demand.
Key points about pricing:
- Every dispatched unit in a region receives the same regional price
- The marginal generator's bid sets the price, even if cheaper units are dispatched first
- Prices can spike or drop quickly if the marginal unit has a high or low bid
This mechanism ensures that the market incentivises generators to supply electricity efficiently.
Price Volatility
Electricity prices are inherently volatile because the market responds to changing conditions in real time.
Price fluctuations can be caused by:
- Rapid changes in demand
- Unexpected generator outages
- Interconnector or network constraints
- Variability in renewable output
Short-term spikes are a normal feature of the NEM and reflect real-time system conditions, not market failure.
Dispatch vs Actual Generation
Dispatch targets are instructions from AEMO, but actual output can differ due to:
- Technical limitations of the unit
- Forced or planned outages
- Forecast errors for renewable generation
Understanding the difference between dispatch targets and actual generation is important for interpreting performance data.
Settlement and Trading
While dispatch occurs every 5 minutes, financial settlement happens every half-hour. Prices for settlement are derived from the 5-minute dispatch prices, typically averaged over the half-hour period.
This means:
- Generators are paid based on half-hourly settlement prices
- The real-time dispatch interval determines how those prices are calculated
- Market participants must monitor both 5-minute and half-hour outcomes
Settlement prices can differ from instantaneous dispatch prices due to averaging, but both are critical for market operations.
Why This Matters
Dispatch and pricing tie together all the components of the NEM:
- Units submit bids
- Regions and interconnectors constrain flows
- AEMO determines which units run
- Prices emerge from the marginal dispatch
Understanding this system is the foundation for analysing market outcomes, volatility, and generator behaviour.
What to Take Away
- Dispatch determines who produces electricity and how much
- Prices are set by the marginal generator in each region
- Units are paid the regional price, not their individual bid price
- Volatility is normal and reflects real-time market conditions
With this understanding, you're ready to see how constraints and network limits affect the market.
Continue with Market & Network Constraints to learn how physical and security limits shape dispatch and pricing.