Industry and government are reforming a complex system

The National Electricity Market (NEM) is undergoing its most significant overhaul in a century as it transitions from fossil fuels to renewable energy. Of the 26 major coal-fired generators operating in 2012, 10 have already retired. This shift is primarily driven by economics, as global investment in renewables and supporting technologies now receives three times as much funding as coal-fired generation. In the 2026 financial year, renewables met approximately 45% of total demand, and they set a record by reaching nearly 80% for a half-hour interval on 11 October 2025.

Consumers are taking more control over their energy needs

Household and business investments in consumer energy resources (CER) are reshaping the power system. Currently, 36% of suitable dwellings have rooftop solar, providing 20 GW of capacity. This is forecast to rise to 56% by 2050, at which point rooftop and small-scale solar capacity will reach 87 GW. Total underlying electricity consumption is forecast to nearly double, rising from 205 TWh to approximately 390 TWh by 2050. This growth is attributed to population increases and the electrification of transport and industrial processes, with data centres projected to account for nearly 10% of underlying demand by 2050.

The ISP is a roadmap for the NEM’s transition

The Integrated System Plan (ISP) provides a 20-year roadmap to ensure the power system remains reliable and secure while achieving net zero emissions by 2050. The core of this plan is the ‘optimal development path’ (ODP), which identifies the mix of grid-scale generation, storage, and network investments that meet consumer needs at the lowest cost. The 2026 ODP was selected from 34 shortlisted candidates and informed by two years of extensive consultation with around 2,000 stakeholders.

The process to identify the optimal development path

Identifying the ODP involves rigorous modelling of three future scenarios: Step Change, Slower Growth, and Accelerated Transition. Step Change is considered the most likely future, with a 46% likelihood weighting. The selection process utilises five integrated models to evaluate candidate paths against a counterfactual that includes no new transmission beyond what is already committed or anticipated. The final ODP is selected based on its ability to offer the greatest net market benefits and its robustness across various sensitivity analyses.

Renewables to replace coal as bulk generation

Under the ODP, utility-scale solar and wind capacity is projected to rise from 23 GW to 117 GW by 2050. Grid-scale solar will likely represent 55% of this mix by 2050, with wind accounting for the remaining 45%. To meet 2030 targets, approximately 38 GW of new renewable capacity is needed. However, the current connections pipeline only accounts for about three-quarters of this requirement, necessitating accelerated development. Two-thirds of the remaining coal fleet is expected to retire by 2035, and all units are projected to withdraw by 2049.

Storage to firm renewables

Energy storage is essential to manage the variability of solar and wind generation. By 2050, the NEM will require 35 GW of shallow and medium storage (four to 12 hours duration) and 5 GW of new deep storage. This is in addition to existing hydro-electric capacity. Battery costs continue to fall, with new storage in the connections pipeline increasing from 3 GW in late 2022 to 45 GW in 2026, which is already well ahead of the 33 GW required by 2030.

Gas to back up renewables

The role of gas-powered generation is shifting to providing strategic backup during periods of low renewable output or peak demand. The ODP projects a need for 17 GW of flexible gas capacity by 2050. While the gas fleet is expected to supply only about 4% of annual generation on average, its availability is critical for system security. New gas infrastructure, including pipelines and storage, will be required to ensure fuel availability during simultaneous peaks in electricity and gas demand.

Network to connect the NEM

The ODP includes a 14% extension of the transmission network, adding approximately 6,000 km of new lines by 2050. About 40% of this new transmission is needed to strengthen interstate connections, while 60% will connect renewable energy zones (REZs) to demand centres. Currently, eight committed and anticipated projects are underway to deliver 3,500 km of this network over the next eight years.

Consumer and distribution actions to reduce grid-scale investments

Consumer actions, including energy efficiency and CER coordination, significantly lower the scale of required grid-scale investment. In the Step Change scenario, the coordination of consumer batteries and electric vehicles reduces projected ODP costs by $5.2 billion. Furthermore, distribution networks can unlock an additional 4 GW of latent CER capacity through voltage management schemes, requiring a modest investment of $214 million in present value terms.

The ODP would achieve its objectives

The ODP maintains system reliability and security while meeting government policy targets at the least cost. New transmission projects within the ODP are projected to deliver $28 billion in net market benefits to consumers, including $26 billion in avoided system costs and $2 billion in emissions reduction value. In the Step Change scenario, the ODP requires $106 billion of investment to 2050 across grid-scale generation, storage, and network infrastructure.

ODP selection is robust to delays in delivery and to higher demand

Sensitivity analysis confirms that the ODP remains the most appropriate pathway even if infrastructure delivery is delayed or if industrial demand exceeds forecasts. Under a ‘Constrained Delivery’ scenario, transmission investment becomes more valuable as a means to mitigate risks from older coal plants and delayed generation. Similarly, a ‘Higher Demand’ sensitivity shows that the ODP continues to perform close to least-cost despite significant increases in load from data centres and other industries.

Coordinated action to deliver the ODP

Significant progress is being made, but further coordinated action is needed from governments, industry, and market bodies. Critical challenges include securing social licence for new infrastructure, managing global supply chain constraints for assets like transformers and high-voltage cables, and building a skilled workforce. The demand for skilled workers in the energy sector was forecast to increase from 36,000 in 2025 to over 57,000 by 2050.

Next steps to advance the ODP

The focus has shifted to delivery, with substantial projects already underway. Stakeholders are encouraged to advance projects along the ODP to ensure the NEM remains ready for coal retirements. AEMO will update priorities in the 2028 ISP to reflect ongoing market and policy signals and continues to support streamlining connections approval processes in partnership with the Clean Energy Council and industry.