In recent years, the integration of renewable energy and battery energy storage system (BESS) has been reshaping price formation in electricity markets owing to their distinctive roles. These technologies increasingly act as price setters (marginal units), thereby changing the structure of price formation. In the Australian National Electricity Market (NEM), market prices often turn negative when renewable generators are the price setters, and the frequency with which BESS acts as a price setter has risen markedly in recent years. To analyse these developments more precisely, this study introduces a new decomposition framework.

　　We define three metrics—Negative Incremental Cost (NIC), Offset Incremental Cost (OIC), and Core Incremental Cost (CIC)—to decompose price formation with respect to an additional 1 MW of demand. NIC represents the total incremental cost associated with negative incremental supply, OIC represents the total incremental cost of the least-cost offset of this negative supply, and CIC is the residual cost. In addition, contribution rates (CRs) are defined to compare the contributions of different units and fuels to CIC. This framework clarifies the role of price setters when negative incremental supply occurs, a situation not explicitly treated in previous studies.

　　Applying these metrics to NEMDE Price Setter data from 2021 to May 2025, we find that deviations of market prices from core price setters’ bids occur predominantly around zero prices. NIC plays a critical role in these deviations, although OIC can partly offset it. Solar and wind frequently appear in NIC, and their negative bids sometimes lead to positive NIC contributions, exerting upward pressure on prices. By contrast, BESS charging on average plays a role opposite to that of solar and wind, contributing negatively to NIC and thereby exerting downward pressure on prices.

　　Further results show that the contributions of solar and wind to CIC increase over time, while those of conventional fuels decline. Analysis of NIC occurrences also indicates that the proportion of positive NIC is consistently substantial, mainly due to solar and wind, while the increasing appearance of BESS is also observed.

　　Overall, the decomposition into NIC, OIC, CIC, and CRs provides a novel perspective for examining the mechanisms of price formation in the NEM. The results reveal counter-intuitive upward effects of negative bidding by renewables, whereas BESS tends to behave in the opposite direction, particularly through charging. These findings suggest that renewable energy and BESS is playing a growing role in shaping price formation, though the precise nature of this role requires further investigation.