Market Design in a Weather‐Dependent and Distributed Electricity System: Lessons From the 2025 NEM Review

ABSTRACT Australia's National Electricity Market (NEM) is undergoing a rapid transition to a weather‐dependent and increasingly distributed system. This article draws on the 2025 NEM Review to examine whether the core energy‐only market design remains fit for purpose. It argues that the principal challenge is not the operation of the spot market, but the weakening of linkages between short‐term dispatch, medium‐term risk management and long‐term investment. The growth of behind‐the‐meter resources has reduced system visibility, the shift to renewable generation has altered the nature of risk, and a structural mismatch between contracting horizons and asset lives has created a ‘tenor gap’. Policy responses should therefore focus on improving visibility, strengthening forward markets and introducing targeted mechanisms to support long‐term investment while preserving market signals.