Australia’s energy sector is experiencing unprecedented transformation as the nation progresses toward its 2050 net-zero emissions commitment. With accelerating renewable energy penetration, demand growth driven by the electrification of various sectors and coal-fired generation retirements, the Commonwealth government is driving coordinated policy action to achieve its 43 per cent emissions reduction target by 2030 (from 2005 levels), an 82 per cent renewable energy sources generation target for the National Electricity Market (NEM), and ambitious 2035 interim targets of 62-70 per cent emissions reduction (introduced in September 2025). Key initiatives include the expanded Capacity Investment Scheme (CIS) targeting 40 GW of new renewable and dispatchable capacity by 2030, bilateral Renewable Energy Transformation Agreements (RETAs) with states and territories, and the broader Powering Australia framework (2022) that positions energy decarbonisation as essential to economy-wide emissions reduction.

Australia’s NEM is undergoing its most significant transformation in a century, with renewables already meeting over 40 per cent of all NEM electricity demand in 2024-25, ending June 30, 2025. It reached 51 per cent in October 2025, hitting a record 79 per cent for a half-hour period on October 11, 2025. To efficiently manage the long-term power system development, the Australian Energy Market Operator (AEMO), in December 2025, released the draft 2026 Integrated System Plan (ISP). Published every two years, the ISP includes an optimal development path (ODP) outlining the generation, storage and transmission investments required to meet energy needs through 2050.

The draft plan, developed through 18 months of extensive consultation with over 1,400 stakeholders and incorporating 241 written submissions, considers three scenarios to achieve net zero by 2050: Step Change, Slower Growth and Accelerated Transition. The Step Change scenario remains the most likely pathway, weighted at 46 per cent probability. Under the ODP for this scenario, total capital investment across all utility-scale generation, storage, firming, transmission and distribution infrastructure is projected at AUD128 billion in annualised present value terms through 2050 (AUD156 billion in total present value, accounting for technical lives extending beyond 2050). The plan calls for an addition of over 5,800 km of transmission lines by 2050, representing AUD9 billion or 7 per cent of total capital costs, which together with all other infrastructure investments, would deliver net market benefits worth AUD24 billion compared to a future with no additional transmission.

For the first time, the 2026 ISP expands its scope following the Energy and Climate Change Ministerial Council’s (ECMC) review to more explicitly consider how grid-scale electricity investment, consumer energy resources (CERs), distribution networks and gas infrastructure interact. This enhanced whole-of-system approach provides a more comprehensive roadmap for the energy transition.

This article presents recent policy and industry developments supporting the energy transition and the key findings of the draft 2026 ISP.

Recent policy and industry developments

Since the 2024 ISP, there has been intensified government involvement and coordinated investment across both federal and state levels to support Australia’s energy transition. The Commonwealth has maintained momentum in rolling out the expanded CIS, while states have progressed their renewable energy zone (REZ) frameworks and transmission planning initiatives.

Federal initiatives

The federal government’s flagship CIS scheme was expanded on July 29, 2025, by 8 GW to 40 GW, raising renewable generation targets from 23 GW to 26 GW and clean dispatchable capacity from 9 GW to 14 GW. The scheme has progressed through regular competitive tenders since May 2024, with eight tender rounds opened and 18.8 GW announced so far, and a further 7.2 GW currently out in active tenders. A total of 39 new renewable projects (13 GW) and 20 battery projects (4.8 GW) have been awarded across New South Wales (NSW), Victoria, South Australia (SA), Queensland and Tasmania as of December 2025. Through bilateral RETAs under the National Energy Transformation Partnership, 18 GW of CIS capacity is allocated to states. Five states – SA, Western Australia (WA), Australian Capital Territory (ACT), Victoria, Tasmania and NSW – have signed RETAs so far, providing for 24.5 TWh of new renewable projects and 5.48 GW of storage. For transmission, under the flagship AUD20 billion Rewiring the Nation (RTN) initiative, the government, through the Clean Energy Finance Corporation (CEFC), has committed AUD7 billion across five states.

State-level developments

NSW: The August 2025 Infrastructure Investment Objectives (IIO) report sets higher goals – 16 GW of new renewable generation by 2030 (up from 12 GW minimum) and 42 GWh of long-duration storage by 2034 (up from 28 GWh minimum). Following the Transmission Planning Review (October 2025), which identified reforms to better coordinate planning between NSW’s transmission system operator Transgrid, EnergyCo (which is coordinating the delivery of five REZs), and AEMO, NSW accepted its recommendations of streamlining REZ network infrastructure project authorisations, strengthening network-to-network connections regulation and clarifying responsibilities for REZ system planning and improving coordination. The passage of the Electricity Infrastructure Investment Amendment (Priority Network Projects) Bill, 2025 (August 2025), removes barriers for distribution network projects. The Energy Security Corporation, a state-owned bank, was launched in July 2025 with AUD1 billion in capital for large-scale storage investment.

Queensland: The new state government’s Queensland Energy Roadmap (October 2025) repealed previous renewable energy targets while maintaining net zero by 2050. The roadmap extends coal-fired power station operating timeframes to their technical lives and replaces the REZ framework with market-led Regional Energy Hubs. A AUD400 million Queensland Energy Investment Fund will drive investment in renewables, gas and storage. The state’s flagship CopperString2032 project continues progressing to connect Mount Isa to the grid, with twelve Regional Energy Hub locations identified.

Victoria: VicGrid’s 2025 Victorian Transmission Plan (August 2025) identifies six REZs with potential for 35.2 GW of new developments by 2040. Legislated targets remain 65 per cent renewable by 2030 and 95 per cent by 2035, with offshore wind (OSW) targets of 2 GW by 2032, 4 GW by 2035 and 9 GW by 2040. The plan introduces AUD8,000 per km payments for landholders hosting transmission infrastructure. Victoria hosts over 90 large-scale renewable projects (nearly 7 GW) with more than 50 GW in the pipeline.

Other states: SA’s 2025 electricity reforms accelerate its transition to 100 per cent net renewables by 2027 (instead of 2030), manage increased demand, ensuring grid stability with smart technologies and implement new frameworks like the 2025 Electricity Development Plan and revised Retailer Energy Productivity Scheme (REPS) for 2026-2030. Tasmania maintains 100 per cent renewable generation (mainly via hydropower and wind) and aims for 150 per cent by 2030 and 200 per cent by 2040, backed by the Marinus Link, enabling the “Battery of the Nation” concept. The WA government is heavily investing in the expansion of the South West Interconnected System (SWIS) through a new entity, PoweringWA, and the SWIS Transmission Plan. To reduce barriers to new entrants, the government is introducing a new contributions model (July 2026) that replaces the previous “first-mover” pays arrangement.  New users over 10 MW will pay a one-off Fixed Capital Charge of AUD100,000 per MW of proposed connection capacity towards the cost of shared transmission infrastructure.

Future generation and demand scenarios

The draft 2026 ISP considers three future demand scenarios through 2050 – Step Change, Slower Growth and Accelerated Transition – based on varying rates of emission reduction, electricity demand and economic transformation, all achieving net zero by 2050 while acknowledging continued coal retirement.

Step Change represents the most likely pathway (46 per cent probability), with underlying electricity consumption nearly doubling from 205 TWh currently to 389 TWh by 2049-50, comprising 273 TWh from grid-scale resources and 116 TWh from consumer energy resources and on-site generation. This scenario assumes progressive policy implementation, steady electrification of transport and industry, and moderate economic growth. Slower Growth (27 per cent probability, replacing Progressive Change) consumption is estimated to reach 315 TWh by 2050, while under Accelerated Transition (27 per cent probability, replacing Green Energy Exports), it is estimated to reach 461 TWh.

Under the proposed ODP for the Step Change scenario, the NEM would undergo a fundamental transformation by 2050, transitioning from 21 GW of coal-fired generation to a diversified portfolio comprising 120 GW of grid-scale wind and solar, 40 GW of dispatchable grid-scale storage and hydro, 14 GW of flexible gas-powered generation, and significant consumer energy resources totalling 87 GW of rooftop solar and 27 GW of batteries.

Coal capacity is projected to fall from 21 GW today to around 7 GW by 2035, with a full exit by 2049. This slower pathway than the 2024 ISP forecast reflects Queensland’s Energy Roadmap, which extends state-owned coal plant operations. Grid-scale renewable capacity would increase from 23 GW currently to 58 GW by 2030 and 120 GW by 2050. Solar capacity is forecast to reach 32 GW by 2030, 38 GW by 2035 and 63 GW by 2050, while wind rises to 26 GW, 40 GW and 57 GW respectively. Grid-scale solar costs are expected to decline from AUD1,500 per kW in 2025 to AUD1,100 per kW by 2030.

The ODP projects 33 GW of despatchable storage by 2050, including 27 GW by 2030, plus 7 GW of existing hydro. Battery costs are forecast to fall to AUD800 per kW by 2030, supporting rapid growth in storage and new pumped-hydro projects. By 2050, households are expected to install 87 GW of rooftop solar and 27 GW of batteries, with electric vehicle (EV) penetration reaching 80 per cent.

Transmission ODP

The transmission network forms the critical backbone enabling the energy transition, connecting high-quality REZs to demand centres and strengthening interconnection between states to enhance system reliability and security. Under the Step Change scenario, 5,802 km of new transmission infrastructure would be needed by 2050, representing a 13 per cent extension of the current 44,000 km network. This requirement includes already committed or anticipated projects well under way for delivery by 2031, with the remaining infrastructure to be delivered through actionable and future ISP projects.

The overall extent of new transmission has been refined compared to the 2024 ISP, with some projects being downsized or no longer needed in response to policy changes and market developments (totalling 1,350 km reduction), and others being removed from the total as they have progressed to operational status (365 km). Despite these adjustments, the fundamental role of transmission in enabling least-cost energy delivery remains unchanged, with approximately half of new transmission projects needed to strengthen interstate connections for enhanced reliability and stability, while the remainder connects new generation and storage capacity in renewable energy zones to the grid.

The proposed ODP transmission projects would deliver net market benefits of AUD24 billion to consumers across all scenarios compared to a counterfactual future with no major new transmission development. These benefits comprise AUD22 billion in reduced infrastructure and operating costs (weighted across all scenarios) and AUD2 billion in emissions reduction value (also weighted across scenarios). The transmission investment represents 7 per cent of total system capital costs through 2050, a relatively modest proportion that enables much larger efficiencies across the generation and storage portfolio.

Transmission projects

Seven committed and anticipated transmission projects totalling approximately 2,800 km are currently under way for delivery over the next six years, representing nearly half of the transmission infrastructure needed by 2030. Eleven transmission projects are likely to remain actionable in the proposed ODP, requiring commencement or continuation of work as soon as possible to optimise benefits for consumers. Two actionable projects from the 2024 ISP, Northern Transmission Project and QNI Connect, are subject to ongoing analysis to confirm their status in the final 2026 ISP. Three projects have been brought forward to actionable status, while seven future ISP projects have been identified for potential development beyond the mid-2030s.

Cost comparison and investment outlook

The Draft 2026 ISP projects’ total annualised capital costs through 2049-50 of AUD130.06 billion (in present value, 2025 dollars) represent a 6.3 per cent increase from the 2024 ISP’s AUD122.31 billion. After accounting for inflation and time value effects (adding AUD25.05 billion) and removing costs for projects now committed or anticipated (reducing costs by AUD22.67 billion), the adjusted 2024 ODP baseline stands at AUD124.68 billion in 2025 dollars, with the Draft 2026 ODP adding AUD5.38 billion to this baseline.

The composition of capital costs has shifted significantly across technology categories. Utility-scale storage costs nearly doubled from AUD7.71 billion to AUD14.31 billion, reflecting increased battery deployment. OSW increased from AUD16.41 billion to AUD22.93 billion as Victoria advances its targets. Utility-scale solar rose from AUD14.78 billion to AUD24.72 billion, while onshore wind decreased from AUD60.03 billion to AUD45.69 billion due to improved capacity factors. Flexible gas declined from AUD3.15 billion to AUD2.43 billion, biomass was removed entirely, and system security costs of AUD3.58 billion were newly identified to maintain grid stability as coal retires.

Notably, transmission network costs decreased substantially from AUD16.09 billion to AUD8.67 billion, a 46 per cent reduction, even as net market benefits increased from AUD22 billion to AUD24 billion, demonstrating improved cost-effectiveness. Several factors contributed to this reduction. Major projects progressing to committed status (HumeLink, Hunter-Central Coast, Project Marinus Stage 1) were removed from ODP evaluation. New transmission requirements decreased from 7,600 km to 6,000 km as some projects were downsized or became operational, compared with close to 10,000 km of total transmission expansion identified in the 2024 ISP.  Critically, the weighted average cost of capital (WACC) for transmission was reduced from 7 per cent to 3 per cent in recognition that regulated assets carry lower investment risk than generation projects. This WACC reduction significantly lowered present value costs while maintaining physical infrastructure requirements.

The way forward

The draft 2026 ISP reaffirms that renewable energy, connected by transmission and distribution, firmed with storage and backed up by gas, remains the least-cost pathway to supply secure and reliable electricity as coal retires through 2050. Translating this plan into reality requires coordinated action to overcome delivery constraints. Supply chain pressures, workforce shortages, planning approvals and social licence challenges persist. With the coal fleet ageing and new infrastructure requiring multi-year lead times, delays threaten the 2030 targets and system reliability. Success demands sustained collaboration among industry, governments and communities to accelerate delivery, secure supply chains and build the social licence needed to achieve reliable, affordable and clean electricity for all Australians.