Australia’s electricity system is changing rapidly. As coal-fired power stations retire, renewable generation continues to grow, electricity demand is expected to increase through electrification of homes, industry and transport, and a two-sided market is evolving as consumers are playing an active role through rooftop solar, batteries and other distributed energy resources.
Understanding what these changes mean for the future of the power system is no simple task. The release of AEMO’s 2026 Integrated System Plan (ISP) and 2026 Wholesale Electricity Market Electricity Statement of Opportunities (WEM ESOO) provides an opportunity to examine how the system is expected to evolve. While the ISP sets out a long-term roadmap for the National Electricity Market (NEM), the WEM ESOO assesses the reliability outlook for Western Australia’s South West Interconnected System (SWIS). Together, they explore what will be needed to maintain a reliable electricity system as demand grows, traditional generation retires, and a new generation mix enters the system.
The reports have different purposes but have similar findings. The ISP identifies the generation, storage and transmission investments required to deliver a least-cost pathway through to 2050, while the WEM ESOO examines whether enough capacity will be available to meet demand in the SWIS over the next decade. Together, they provide a useful snapshot of how Australia’s two largest electricity systems are planning for the energy transition.
Different Jurisdictions, Different Challenges
The NEM and the SWIS are starting from very different positions.
The NEM, already equipped with a diverse generation fleet connected by an extensive transmission network that spans across the eastern states, is primarily focused on the challenge of coordinating new generation, storage, and transmission investments as coal exits the system and renewables supply an increasing share of electricity.
The SWIS, by contrast, is an isolated electricity system with no interconnection to neighbouring markets. Maintaining reliability depends entirely on having sufficient generation and storage available within the system. Accordingly, the WEM ESOO focuses on whether enough capacity will be available to meet growing demand and replace ageing thermal generation over the coming decade.
Despite this, both reports highlight many of the same challenges facing Australia’s electricity transition.
How the Two Reports See the Transition
| Theme | ISP (National Electricity Market) | WEM ESOO (South West Interconnected System) |
| What the transition expected to look like? | The ISP forecasts a system undergoing large-scale structural change through to 2050. It assumes electricity consumption almost doubles from around 205TWh today to 390TWh by 2050, driven by population growth, economic growth, data centres, and electrification. Renewable generation becomes the dominant source of supply as coal generation withdraws from the system. | The WEM ESOO forecasts a more immediate transformation over the next decade. Grid-delivered consumption is forecast to increase from 16.4 TWh in 2025-26 to 24.4 TWh by 2035-36, while peak demand rises from around 4.7 GW to more than 6 GW over the outlook period. |
| Demand growth and system change | Forecasts significant growth in electricity consumption as transport, industry and households electrify, and data centres come online. Underlying consumption is expected to increase from around 205 TWh today to 390 TWh by 2050, fundamentally reshaping how the system is planned and operated. The transition is reshaping the electricity system from one centred on thermal generation to one increasingly supported by renewable generation, storage, gas and consumer energy resources. | Delivered consumption is forecast to increase from 16.4 TWh in 2025-26 to 24.4TWh by 2035-36, with peak demand rising from around 4.7GW to more than 6GW. Demand growth alone will create a substantial need for additional capacity over coming years, even before accounting for thermal plant retirements. |
| Coal and thermal generation retirements | The ISP identifies coal retirements as one of the defining challenges of the transition. Of the 26 major coal-fired generators operating in 2012, 10 have already retired and around two-thirds of the remaining fleet could retire by 2035. Successfully replacing this capacity while maintaining reliability is one of the transition’s largest infrastructure challenges. | The WEM ESOO highlights the declining role of existing thermal generation as a key reliability challenge. Forecast capacity begins to tighten as thermal generators retire or become unavailable, increasing reliance on new generation, storage and demand-side resources. The report notes that committed projects improve near-term reliability, but additional investment is required from around 2029-30 onwards. |
| Role of renewables | Renewables are the centrepiece of the future NEM. The ISP projects nearly 120GW of grid-scale wind and solar by 2050, supported by Renewable Energy Zones and new transmission infrastructure. Renewables are treated as the primary replacement for retiring coal generation. | Renewables continue to expand rapidly within the SWIS, led by distributed generation. Rooftop solar is already the largest generator in the system and is forecast to almost double to approximately 6 GW by 2035-36. There is less focus on renewable deployment itself and more on the implications of operating a system with increasingly high renewable penetration. |
| Storage and firming | The ISP concludes that renewables must be supported by significant investment in firming resources. The roadmap includes around 35 GW of shallow and medium-duration storage, alongside long-duration storage, hydro resources and flexible gas generation to support reliability through periods of low renewable output. | Storage increasingly becomes part of the reliability solution in the SWIS. Around 45 per cent of additional committed capacity by 2028-29 comes from Energy Storage Resources (ESR). Battery storage is expected to play an increasingly important role in managing peak demand and renewable variability. |
| Consumer Energy Resources (CER) | CER is treated as a core component of the future energy system. The ISP notes that 36 per cent of suitable homes already have rooftop solar and around 600,000 households have batteries. Consumer investment reduces grid demand and lowers the amount of generation and network infrastructure required. | CER is expected to play a growing reliability role. Virtual power plants are forecast to reduce annual peak demand by around 200 MW by 2028-29, while household battery capacity is forecast to increase from approximately 500 MW to 2.3GW by 2035-36. |
| What new investment is needed? | Replacing the retiring coal generation will require major investment across the entire supply chain. This includes nearly 120 GW of grid-scale wind and solar by 2050, around 35 GW of storage, expansion of Renewable Energy Zones and delivery of actionable transmission projects across the NEM. Generation, storage and network investment must occur in parallel to deliver the least-cost transition. | New investment in generation, storage and consumer energy resources[i] will be required over the next decade as electricity demand grows and ageing thermal generation retires. While committed projects are expected to support reliability in the near term, investment requirements are forecast to increase significantly from the end of the decade, reaching more than 2.1 GW by 2035–36. |
What Will the Transition Need?
Australia’s energy transition will not be delivered by any single technology. It will be achieved through a more complex electricity system where renewable generation, storage, transmission, dispatchable generation, and consumer energy resources each play an important role. While renewables are expected to supply an increasing share of electricity, maintaining reliability will depend on the successful coordination of these complementary resources.
The question is no longer whether renewable energy can become a major part of the electricity system, but whether the infrastructure needed to support it can be delivered quickly enough. Both the NEM and the SWIS face a similar challenge: bringing new generation, storage and network investment online in time to replace retiring coal-fired power stations and meet growing electricity demand driven by electrification, data centres and potentially hydrogen.
Consumers are also expected to play a much larger role in the energy system. Rooftop solar, household batteries, electric vehicles and other distributed energy resources will shape how electricity is generated, stored and used. Households and businesses, rather than simply consuming electricity, will become active participants in the power system, helping to manage demand, support reliability and contribute to a more flexible and resilient electricity market.
Conclusion
Australia’s electricity transition is moving from a period of planning to one of delivery, with the focus shifting from identifying the future shape of the system to ensuring the infrastructure, investment and coordination required to make it a reality is in place.
While the NEM and SWIS face different circumstances, both highlight the scale of the challenge ahead. Successfully navigating the transition will require timely decision-making, effective coordination across the sector and the ability to deliver new infrastructure at the pace required.
The decade ahead will be defined by how effectively Australia manages this transition while maintaining reliability, supporting growing electricity demand and delivering an electricity system capable of meeting the needs of a more electrified economy.
