The New South Wales government has slashed the 2026-27 target for the Peak Demand Reduction Scheme (PDRS) to 0.5 per cent, down from 7.5 per cent, in a drastic bid to help the state market adjust to the impact of the federal battery rebate.
The dramatic cut to the 2026-27 target was announced by the NSW government announced on Friday in response to forecasts of a major shortfall in Peak Reduction Certificates (PRCs) and to avoid inflicting widespread penalties on scheme participants.
The decision has received a mixed response, with some analysts claiming it has “sent shockwaves through the market,” while others have described it as “understandable” but “disappointing.” The PRC price dropped from $2.86 on Friday to around $2.60.
The PDRS is a market-based scheme that uses tradable certificates to create a financial incentive for cutting electricity use during periods of peak demand – a key tool to help smooth the NSW transition from coal to firmed renewables.
The scheme functions by creating a market for Peak Reduction Certificates (PRCs), which are generated through eligible actions by homes or businesses like installing more efficient air conditioning or adding a home battery.
When the scheme was first launched in 2022, the installation of discounted home batteries was one of the major drivers of PRC creation – and was expected to continue to underpin the market and help drive a targeted 10 per cent reduction in peak demand by 2029/30.
But the rushed July launch of the federal government’s Cheaper Home Batteries scheme threw a spanner in the works, after the NSW government decided to take home battery installation out of the PDRS, rather than stack the two rebates.
To make up for removing home batteries, the government boosted the incentive for households that sign up their battery to a virtual power plant (VPP) and, while this has proven somewhat of a success, the generation of PRCs has effectively fallen off a cliff since July.
In an update published on Friday, the NSW government said “significant growth” in existing and new activities would be required to meet the 2025-26 and revised 2026-27 target.
“Without target adjustment, around 80 million additional certificates would need to have been created and surrendered by March 2028, risking a shortage of certificates and penalties for scheme participants,” it says.
“The chart below illustrates how many certificates have been created to date and an estimate of how many will be required to meet scheme targets. We intend to consult on setting future PDRS targets later this year.”
On the plus side, the NSW government says that between July and October 2025, an estimated around 35,000 VPP-enabled batteries have been installed through the federal scheme – nearly double that of any other state or territory.
“Initial data suggests that certificates created each month from the PDRS VPP activity has doubled since 1 July. We expect this to increase as additional certificates are created for VPP implementations that occurred between July and September 2025.”
Nevertheless, the decision to slash the 2026/27 PDRS target back down to where it started in 2022 (0.5 per cent) has raised concerns that it will damage long-term confidence in the scheme.
The government is also being criticised for not being quicker off the mark to act on its promise to add more eligible activities – such as commercial and industrial-scale batteries, batteries for apartments and electric vehicle charging – to boost certificate creation and buoy the market.
“With Virtual Power Plants and air conditioning the main activities remaining and a substantial amount of creation still required to meet the 2025-26 target (to be surrendered in Mar 2027), it became clear that supply was going to be extremely tight for 2025-26,” Core Markets said in an emailed update on Friday.
“[But] the [NSW government] announcement …on Friday …sent shockwaves through the market,” the update continues.
“While many had expected a target reduction of 25-50%, the decision was made to instead reduce the 2026-27 target from 7.5% to 0.5% (or circa 62m to 4m), a 95% reduction. Such an extreme step was anticipated by no-one.
“Given the department is set to consult on new activities by the end of the year, including commercial and industrial batteries, batteries for apartments, EV chargers and the potential for the reintroduction the BESS1 activity with stacking of the federal rebate for a more targeted group of households, one could be forgiven for expecting some future PRC supply to flow from these activities.
“But with the 2026-27 target now decimated, the question is will this shock announcement undermine those activities moving forward.”
Green Energy Markets’ Ric Brazzale says a major target revision was to be expected, having been flagged by the state government in a notice to market about a month ago. But it was still a blow to the fledgling market.
“The NSW government’s decision to dramatically reduce the 2026/27 PDRS target, whilst understandable due to the removal of the BESS1 activity following the Commonwealths Cheaper Home Battery Program is nevertheless disappointing,” Brazzale told Renew Economy.
“We believe that it is extremely important that the government introduce new activities under the program particularly activities targeting the commercial sector such as HVAC [heating, ventilation and air conditioning] and battery storage.”
In a statement provided to Renew Economy, a spokesperson from the NSW department of climate and energy said the state government would consult with industry stakeholders over the next few months on a range of new activities for the PDRS. Â
“The NSW government has taken action to reduce the 2026-27 target for the PDRS so scheme participants are not penalised due to a certificate shortfall caused by changed market conditions, and so that these costs are not passed onto NSW electricity consumers,” the statement said.Â
