The WEM is a gross dispatch and net market settlement energy market. The bulk of energy is traded bilaterally, with net differences between contracted and energy positions traded in the real time energy Market. This is combined with the RCM that pays generators for availability.

Wholesale trades are settled at the MCP on a five-minute settlement basis. The MCP reflects the marginal cost of supply and serves as the WEM’s spot price. This mirrors arrangements in the NEM.

The WEM incorporates several mechanisms not found in the NEM. Its use of the RCM, and associated energy spot market price caps, present different value opportunities to those present in the NEM’s energy-only gross-pool market. The main difference from the NEM is the lower value in energy arbitrage and smaller price spreads.

Key points

• The WEM combines bilateral contracts with centrally coordinated real-time energy dispatch.
• The Reserve Capacity Mechanism pays eligible resources for maintaining sufficient capacity.
• Capacity costs are recovered from market customers through the Individual Reserve Capacity Requirement.
• Five Frequency Co-optimised Essential System Services are procured alongside energy.
• Other security, reliability and network services may be procured through the Non-co-optimised Essential System Services framework.

The reserve capacity mechanism

AEMO administers the RCM to ensure sufficient generation capacity in the SWIS. This involves:

• Setting the Reserve Capacity Requirement: The RCR is determined two years in advance and published in the WEM Electricity Statement of Opportunities (ESOO). The RCR specifies the total capacity needed to meet forecast peak demand and reliability standards.
• Allocating certified reserve capacity: Based on each facility’s technical capability, AEMO certifies capacity and issues capacity credits, which represent the amount of capacity a participant commits to provide.
• Procuring supplementary reserve capacity: If, at any time after six months before the start of a Capacity Year, AEMO determines that available capacity is insufficient to meet the RCR, it will procure additional capacity through a supplementary process.

2025 RCM reforms introduced two forms of capacity credit:

• Peak capacity credits: targeting firm capability during system peak intervals.
• Flexible capacity credits: rewarding facilities able to provide rapid, short-notice response to variability driven by rooftop PV.

This dual-product structure supports the system’s ability to meet both sustained peak demand and fast-changing operational needs.

AEMO procures capacity credits from accredited generators, storage providers and demand-side resources. These facilities apply for accreditation annually and, once certified, they receive capacity payments for each MW of accredited capacity. AEMO pays accredited providers and then recovers the total cost through the IRCR mechanism, which allocates capacity charges to market customers based on their consumption at the peak (the highest demand periods in the SWIS).

Individual reserve capacity requirement

The IRCR is the cost-recovery mechanism for the RCM. It allocates the total cost of capacity payments to market customers (retailers and large contestable loads) based on their contribution to system peak demand in the previous year.

A market customer’s IRCR liability is calculated using their load during AEMO’s selected observed peak demand intervals, and this quantity drives the capacity charge appearing on retailer and C&I electricity bills. IRCR is not a market and does not involve bidding or dispatch. Instead, it functions similarly to a Critical Peak tariff or a TUoS peak demand cost allocation in the NEM.

Retailers and C&I customers can reduce the share of IRCR allocated each year by lowering demand during peak intervals using CER such as storage or flexible loads. Trends in reduction of peak demand, including IRCR related activities feed back into AEMO assessments of future RCR needs. Actions that reduce IRCR do not reduce the overall requirement for a current year, only the share paid by the liable market customer in the subsequent year.

Frequency Co-optimised Essential System Services

Historically called ancillary services, FCESS, are five frequency related services essential for power system security. They are co-optimised with energy dispatch.

• Regulation raise: Measured in MW of response capability, that operates continuously during normal system operation to raise the SWIS Frequency.
• Regulation lower: Measured in MW of response capability, that operates continuously during normal system operation to lower the SWIS Frequency.
• Contingency reserve raise: Measured in MW of response capability, that is activated following a contingency event to adjust generation injection or load withdrawal to arrest the decline of frequency so that it can be raised back to the normal operating range.
• Contingency reserve lower: Measured in MW of response capability, that is activated following a contingency event to adjust load injection or generation withdrawal to arrest the increase of frequency so that it can be lowered back to the normal operating range.
• RoCoF control service: Measured in MW of providing inertia that provides an immediate inertial response to slow the rate of change of frequency following a disturbance

Non-co-optimised Essential System Services

The NCESS framework enables AEMO and Western Power, with approval from the EPWA, to procure services that are not delivered through standard market arrangements. Under NCESS:

• Network Support Services: NSS are procured by Western Power or AEMO to address location-specific issues such as voltage support, congestion relief and capacity shortfalls on the network.
• Essential system services: ESS may be procured by AEMO for system-wide needs such as system strength, peak capacity shortfalls, minimum demand management, inertia and other stability-related services.
• System restart services: These are procured by AEMO to enable the restoration of the power system following a major blackout. These services provide the capability to start generating units without an external power supply and progressively re-energise the network until normal operation is restored.

NCESS provides a pathway for C&I customers and aggregators to deliver targeted reliability and security services without requiring wholesale market participation.

Resource registration and participation

The WEM uses a market participant and facility registration model, where participation is enabled by an accredited market participant registering one or more facility classes with AEMO. This framework covers all controllable resources, including generation, storage and demand-side resources.

Facilities can be classed as a network scheduled facility, semi-scheduled facility (at or above 10 MW), non-scheduled facility (below 10 MW), an interruptible load or a demand-side programme.

C&I customers and CER aggregators can participate in the WEM by either becoming an electricity market participant and registering their own facilities, or by operating through an existing market participant (such as a retailer or other service provider) who manages dispatch, telemetry, compliance and operational obligations on behalf of the facility. This structure provides a pathway for integrating CER and enabling future VPP and demand-side participation within the WEM.

Related articles

• Participating in the Western Australian Electricity Market
• Residential and small customer CER participation
• C&I CER participation
• Participating in the National Electricity Market