Energy ministers endorse Nelson market review to succeed CIS, with the exception of Queensland

State and federal energy ministers have endorsed the recommendations of the Nelson Review on market design – with the notable exception of Queensland – which will form the country’s flagship platform once the Capacity Investment Scheme is concluded in 2027.

The final report of the review, led by energy expert Dr Tim Nelson, was presented to the energy ministers on Tuesday, and includes the previously flagged Electricity Services Entry Mechanism (ESEM), a market making obligation, and improved visibly of “price responsive resources.”

The 275-page review has been published on the ministerial council website. It contains the bulk of the recommendations made in the draft report, but with some tweaks and additions made after the input of more than 100 submissions.

The review is designed to send clear, longer term price signals for new investment – both in bulk renewables and dispatchable resources such as battery storage, gas and pumped hydro – to ensure enough new capacity is built to allow for the retirement of the country’s ageing fleet of coal generators.

“Energy Ministers …. agreed in principle to its core recommendations – noting Queensland did not provide in-principle agreement,” the ministers said in a communique.

The ministers noted that the ESEM design provides for tenders to accommodate technologies that are part of a state government’s energy policy, such as offshore wind and long duration storage. 

“The implementation of the ESEM will be prioritised to enable timely processes to support respective State priorities,” the statement said.

“Officials have been tasked to develop a work program drawing on the Panel’s implementation roadmap that will be provided by February 2026, so that Ministers are able to consider detailed design proposals in 2026 that would give effect to these reforms, aiming to have the ESEM in place by end of 2027.”

Queensland also broke ranks on a proposal to provide the Australian Energy Market Operator with last resort powers in the east coast gas market, to ensure sufficient supply for households and industry.

The ministers noted that Gas will continue to play an important role in the energy system, providing firming for renewable energy and supporting industrial processes where no viable alternatives exist, even though AEMO’s latest multi-decade blueprint dials down the capacity required.

A draft regulatory package will be prepared for consultation in January 2026 on AEMO’s last resort powers, but Queensland did not support the motion.

One of the major tweaks to the Nelson report noted by the ministers is the focus on “visibility”, particularly of new industrial loads such as data centres, and emerging technologies such as household batteries and EVs. The Clean Energy Regulator will be tasked with being the regulator for consumer energy resources.

Ministers also asked officials to review cost recovery arrangements to ensure data centres cover network upgrade and connection costs.

They will also be looking at action to ensure new load growth is efficiently integrated into the grid, including developing a framework to facilitate demand flexibility and ensuring new firmed generation enters the market as data centre energy demand increases.

The ministers also want to improve AEMO’s visibility of data centre energy use.

“One of the most pressing concerns in the operation of the spot market is the emergence of a growing class of non-scheduled resources that are responding to wholesale prices (‘hidden participants’) whose behaviour and impact on the system are not directly visible to AEMO and market participants in real time,” the Nelson report notes.

“This includes unscheduled consumer energy resources (CER), such as battery storage, electric vehicles and flexible demand.

“Traditional assumptions of inelastic demand are no longer valid. Consumers are now not only price-responsive but also producers of electricity, introducing a layer of complexity to system operation that challenges established tools and frameworks.

“The rise of these hidden participants risks undermining the operational integrity of the system if not properly integrated.

“The presence of hidden, flexible resources creates a risk of uncoordinated withdrawal or injection of power during critical periods, making it more difficult for AEMO to maintain frequency, system strength and other essential system services.

“The rapid growth in CER and distributed energy resources (DER) means that ‘hidden’ price-responsive behaviour is increasingly creating risks to efficient market outcomes and operational performance.”

See also: No major changes but some important tweaks in final Nelson Review – more visibility, shorter tenors

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