ISP warns of missed targets and added costs from delays, and as LNP throws coal spanner in the works

The Australian Energy Market Operator has again insisted that wind, solar and storage, backed up by a small amount of additional gas and new transmission lines remains the lowest cost avenue for Australia to meet its emissions targets and replace its ageing coal fleet.

But it warns that the benefits could be diminished by added costs caused by the delays in new projects, particularly transmission, and for the first time it models a “constrained” outlook that would see the country fall short of its 2030 renewable energy target.

The draft 2026 Integrated System Plan – released on Wednesday – includes a lot more coal in the system than last time thanks to the Queensland LNP government’s coal-keeper energy plan, but it also highlights the benefits of a big fall in battery storage costs which is helping offset rising costs elsewhere.

The ISP is the multi-decade blueprint and roadmap published every two years by AEMO, and this draft edition follows more than 18 months of consultation with more than 1,000 stakeholders, and its outcome is keenly watched by supporters and critics alike.

AEMO says its Optimal Development Path (OPD, which remains Step Change) would see grid-scale wind and solar capacity rise from its current installed capacity of 23 gigawatts (GW) to 58 GW by 2030, and then more than double again to 120 GW by 2050. 

Consumers play a critical role, delivering 87 GW of rooftop solar by 2050 – up from the 75 GW estimated two years ago – as well as 27 GW of small battery storage and a further 9 GW of storage capacity from millions of EVs.

Together, and properly “orchestrated” within virtual power plants and the like, this helps reduce grid battery storage investment needs by $7.2 billion.

But it has other implications too. Households are expected to draw down just 20 terawatt hours (TWh), even with fully electric homes, while overall grid demand doubles to more than 389 TWh thanks to increased business and industrial.

(Note that last line – business doesn’t die in the switch to renewables, it just uses more electricity. But the big impact is on the traditional retail businesses which need to react to a completely different environment).

AEMO says the optimal development path will cost around $128 billion – that’s $2.8 billion more than last year, despite the removal of some transmission lines that may no longer be needed.

Transmission costs have doubled in some cases, but the total cost is mitigated by a significantly lower weighted average cost of capital (WACC) of just 3 per cent, compared to 7 per cent previously.

Also, the amount of new transmission has been reduced by 1,300 kms to around 6,000 kms, partly by the Queensland cancellation of the Pioneer Burdekin pumped hydro project.

AEMO says the transmission costs will still deliver a net benefit of $24 billion, including $2 billion of emissions saved. But it warns that those benefits could be reduced by delays in project deliveries, with some transmission projects facing planning and social licence issues, and supply chain hurdles.

It also models a new constrained delivery scenario that suggests the country may only reach 75 per cent renewables by 2030, short of the 82 per cent official target from the federal Labor government, but still ahead of some of the more pessimistic private forecasts of less than 60 per cent.

AEMO says 35 GW of new grid-scale solar and wind would be needed under the proposed ODP. “Currently, wind and solar projects to deliver the equivalent of 24 GW are progressing through the connections process.”

But if less renewables are built, then coal will have to stay in the system longer, putting grid reliability at risk because they are more prone to failure, as the Reliability Watch report published this week underlines.

“While momentum in investment and delivery continues to build, challenges remain in delivering essential infrastructure at the pace required,” AEMO chief executive Daniel Westerman said in a statement.

“Slower progress will erode benefits to consumers and present risks to reliability.”

Part of the problem lies in the election of the new LNP government in Queensland, which has vowed to keep its state owned coal generators operating until 2049 (see table above). It is also making life difficult and complicated for new wind and solar projects and its roadmap models no new capacity apart from that already committed.

Coal, which was forecast to be gone from the grid by 2040 in the last 20245 ISP, now hangs around until 2049 due to the Queensland LNP’s coal-keeper plan, while gas capacity is forecast to increase from 12 GW to 14 GW (although this will be nearly all peaking capacity that will be rarely used).

Two thirds of the country’s coal capacity will be out of the system by 2035, and AEMO says those that remain will have to change the way they operate – the concept of “baseload” will not exist any more, and the focus will be on dispatchable and firming capacity, hence the focus on battery storage and peaking gas, where needed.

Much of that is driven by the significant role and impact of rooftop solar, which is changing the shape of the grid and putting focus on flexibility – not traditionally the strong point for coal plants.

“Today the energy market operator has confirmed Australian households are leading the charge of Australia’s energy transition with rooftop solar, batteries and electric vehicles, delivering a lower cost power system for all Australians,” federal energy minister Chris Bowen said in a statement.

“After a decade of policy failure, the Albanese Government’s plan for a modern Australian grid, powered by reliable renewable energy backed up by gas and storage is the only plan backed by experts. 

“Australia is not alone in modernising its energy grid with renewables – globally in 2024, renewable generation received three times as much investment as did coal. In the first half of 2025 and for the first time, more of the world’s energy was delivered by renewables than by coal.” 

The best news from the ISP is the continuing and well-document decline in battery storage costs, reflected in huge surge in the new connections pipeline from 3 GW in September, 2022, to 15 GW in 2024 and now to 26 GW in 2025.

“These are battery or hybrid projects (solar or wind with batteries) that provide either shallow storage (up to 4 hours discharge for daily peaks) or medium storage (4 to 12 hours discharge to cover renewable lulls of low sunlight and wind),” AEMO says.

“After this wave of development, most future investments would be medium storage, as shallow storage would increasingly be provided by household and business-owned batteries.”

Battery storage will also deliver more savings in grid security costs – the provision of critical services such as “system strength”.

The current estimate is dependent on the existing technology, mostly big, expensive and hard to get spinning machines known as synchronous condensers, but the draft ISP acknowledges that grid forming inverters – and most of the new battery projects feature this technology – will ultimately deliver these services.

Other changes of interest include a new focus on distribution networks, which have been lobbying for a greater recognition of the role that they can play in hosting new large scale facility and catering for the increased flows to and from households and businesses.

The ISP says distribution networks can also unlock 4 GW of latent CER capacity by optimising their voltage management and other relatively lower cost innovations, and may also be able to accommodate 2 GW of grid-scale generation and storage within the network itself. The local networks have argued their capacity is greater.

The final word should go to AEMO’s assessment of coal, which seems to be the main political talking point, and the basis of most conservative attacks on its work.

“Coal plants may become increasingly unreliable as they approach end of life,” AEMO says.

“Based on recent history and their future age, full unplanned coal plant outages are projected to occur around 7% of the time between 2027 and 2035, and partial loss of capacity a further 17% of the time.

“In other words, coal plants are likely to be fully available only three quarters of the time over that period.

“Coal retirements may occur even faster than these forecasts. Higher operating costs, reduced fuel security, high maintenance costs and greater competition from renewable energy in the wholesale market are challenging the financial viability of some power stations.”

See also David Leitch’s analysis:

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