ISP flags less transmission, more solar, batteries

Hey Reader, welcome to The Energy's weekly data newsletter. This week we explore the market operator's latest Integrated System Plan.

Hot topic

Two of the most disputed documents about Australia’s energy transition are released amid December's annual endurance test of Christmas deadlines and office parties.

Today's draft 2026 Integrated System Plan comes after two years of exhaustive consultation and hotly contested debate about the pace of transition envisioned by its 2024 predecessor.

(The equally hotly contested GenCost will be released by CSIRO next week).

The Australian Energy Market Operator (AEMO) has listened and tweaked its draft ISP. There is much less new transmission — which has become very costly and unpopular with rural folk, and in some cases is pushed out by grid-scale storage — than in the 2024 version.

Plummeting costs of batteries and solar panels have also trimmed the amount of wind and gas generation required. Some coal power also sticks around longer, thanks largely to the Queensland government.

But AEMO’s overall conclusion and direction are unchanged: “Renewable energy connected with transmission and distribution, firmed with storage and backed up by gas is the least cost way to supply electricity to homes and businesses through to 2050.”

Hail the consumer

One thing is truer than ever: the consumer is king of the transition, with a fifth more rooftop solar expected to be installed than in 2024. Consumers will spend about $50 billion on energy resources and account for more than a third of NEM capacity by 2050, the ISP says.

There’s a staggering amount of latent consumer energy capacity waiting to be unlocked by eager distribution networks (a new focus). And data centre demand —hot topic du jour — is dwarfed by electrification, even in 2050.

Capacity in the NEM under AEMO's Step Change Scenario (GW, 2009-10 to 2049-50).
Source: AEMO 2026 Draft ISP

Overall grid-scale solar and wind generation increases from 23 gigawatts today to 120GW by 2050. All projections to 2050 are under AEMO's Step Change Scenario — which assumes the government's renewables and climate targets will be met — unless otherwise stated.

Of course, if the delivery of projects falls short of the sharply accelerated rate required to meet those targets under Step Change — a widely anticipated outcome — costs could be as much as 30% higher, and consumer benefits lower (though still positive).

The cost of solar panels and batteries continues to steer the transition. AEMO now reckons households and businesses will boast 87GW of rooftop and other small scale solar panels by 2050, up from 72GW in the 2024 ISP, and 27GW of home batteries.

Grid-scale solar also increases, to 63GW from 58GW in 2024, but the capacity of wind farms — which face rising costs and community hostility — is sharply lower at 57GW by 2050 (from 69 GW).

Utility storage will be 40GW, made up of 27GW of “shallow” (up to four hours storage) and medium (4 to 12 hours) battery storage, 6GW of pumped hydro storage and the current 7GW of “deep” hydro storage.

Combining these gives 67GW of storage (up from 56GW) but the composition has changed, with a lot more utility batteries and — notwithstanding the cheaper home batteries plunge — less small batteries.

The surge of grid scale batteries has contributed to a big reduction in new transmission, to about 6,000 kilometres (from nearly 10,000km).

The cost of transmission projects has increased by almost 100%, AEMO notes, and this makes them harder to justify relative to grid batteries, whose costs are diving, even though the cost of capital assumed for transmission has been slashed.

“The net market benefit of a transmission project may fall if well-located battery capacity is available, as both transmission and storage act to mitigate reliability risks in the power supply,” the draft ISP says.

Coal clinger

*Coal capacity in the NEM (GW, 2009-10 to 2049-50); dotted line shows 2024 ISP closures timeline. Source: AEMO 2026 Draft ISP*

One of the dramas surrounding the 2024 ISP was the swift dispatch of the coal power sector — it virtually disappeared by 2035. The Australian Energy Regulator even wrote them a letter asking for their homework!

In the two years since, Queensland has come under new management, which has decided its “young” coal power fleet (average age 30 years) should enjoy a longer life. Slow progress on building wind and solar projects has also shortened odds on coal extensions in NSW.

AMEO now sees Queensland running out its coal retirements almost to 2050, while NSW extends “last drinks” for coal power to 2039-40, from 2037-38. The chart above handily delineates the 2024 ISP’s more aggressive coal exit schedule.

As coal power clings on, and becomes more flexible, the amount of gas generation capacity required falls to 14GW (from 15GW).

However, all this comes with risks, as the older these plants get, the more prone to unplanned breakdowns they become.

“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.”

BYO power

Electricity consumption is expected to nearly double to 389 terawatt hours (from 205TWh) but consumers (households and small firms) are expected to supply 116TWh (about 30%) leaving 273TWh to be supplied from grid-scale generation and storage.

But of that grid supply, households are expected to draw just 20TWH, down 40% from 33TWh today. This is because they invest in more efficient homes, solar panels, batteries and electric vehicles capable of vehicle-to-grid charging.

This is a change from the 2024 ISP, which said, “Taken as a whole, households are forecast to draw about as much from the grid across a year in 2050 as they do now.”

*Incredible shrinking grid demand of households and small firms, driven by rooftop solar and batteries. Source: AEMO 2026 Draft ISP*

Retailers and distributors — unless they can sting households with higher fixed charges — are going to have to rely much more heavily on business and industrial customers.

Here the news is better for suppliers. Business and industry increase their consumption of grid power by 90% to 253TWh, despite bringing 42TWh of their own generation to the table.

Electrification accounts for more than half the increase (76TWh), while data centres account for just 29TWh (10.6% of grid consumption; 7.5% of total consumption), less than hydrogen production (34TWh).

Electrification is the main driver of the increase in total consumption, adding 114TWh, of which passenger and freight road transport account for 60TWh.

Poles and wires

The ISP for the first time considers distribution networks — the poles and wires that deliver energy from transmission substations to homes and businesses — as well as supply and demand, and the interaction of all the elements of the grid.

It finds that the networks can unlock up to 4GW of latent consumer energy resources and help avoid $7.2 billion in grid-scale storage investments. More energy efficient building and appliances can unlock another $12 billion in savings.

Victoria and South Australia would account for two-thirds of this latent capacity.

The cost? A steal at just $160 million for improved voltage control; another $260 million would unlock distribution-connected grid-scale generation and storage.

The net present value of investments required to implement the draft ISP would be $128 billion, up 2.8% from the 2024 ISP.

And the net benefits amount to $24 billion ( $22 billion of consumer benefits and $2 billion in the value of lower emissions). The benefits fall to a net $17 billion if the transition is delayed.