Despite some aging infrastructure and a high rate of retirements expected, Australia’s key energy market operator has highlighted a healthy pipeline of investment in new generation over the next decade to meet demand. But delivery will be critical.
The Australian Energy Market Operator’s (AEMO) 2025 Electricity Statement of Opportunities (ESOO) report takes a detailed look at the ten-year outlook on the investments needed to maintain reliability in the energy market.
Despite the rapid changes taking place in both the system and consumption, this year’s report has highlighted a positive outlook.
Some of the key factors it assessed to accurately to forecast this demand are changes in storage, generation and consumption. This includes the widespread uptake of rooftop solar, a transition to EVs, industry electrification and rising data centre power use.
But equally significant was the retirement of aging and fossil fuel-based infrastructure with the AEMO taking into account a collective drop in generation of 11GW from predominantly coal-powered stations that owners have informed the AEMO they intend to retire.
Balancing this drop and contributing to the positive outlook over last year, are 10GW of additional projects that now meet AEMO’s committed and anticipated criteria, including 2.9GW/7 gigawatt hours of utility storage, 4GW of grid-scale solar and 3GW of wind.
At the same time over the studied period, electricity consumption is forecast to increase 28 per cent from 178 terawatt hours (TWh) to 229TWh, driven by the rapid expansion of data centres, as well as the broader inclusion of prospective industrial load and business electrification.
But the report highlights the reliability risks that can be mitigated by the timely delivery of new generation, storage and transmission developments, supported by government-led investment programs and coordinated CER.
Identifying opportunities
The ESOO is produced to identify these investment opportunities for market participants, investors and governments, so they in turn can maintain a reliable supply of electricity in the National Electricity Market (NEM).
This year’s report assesses reliability against two development outlooks: the Government Schemes and Actionable Developments, and Committed and Anticipated Developments
The Government Schemes and Actionable Developments assessment reflects more than 50GW of new generation and storage capacity, including the Capacity Investment Scheme as agreed through renewable energy transformation agreements with the states, and state-based schemes, and actionable transmission developments.
The Committed and Anticipated Developments reliability assessment includes only those generation, storage and transmission projects that are sufficiently advanced to meet AEMO’s committed or anticipated criteria.
The report’s improved reliability outlook is based on all expected investments being delivered on time and in full.
The decade to come
AEMO chief executive officer Daniel Westerman said that delivery of projects in the investment pipeline – generation, storage, transmission and enablement of consumer energy resources – are likely to meet reliability standards for the coming decade.
“The ten-year investment pipeline to manage energy reliability is healthy,” Westerman said.
“Considering the large volume of generation retirements over the next decade, the timely delivery of new generation, storage and transmission, along with the operation of consumer energy resources to support reliability, remain critical.”
AEMO’s latest forecasts show a 28 per cent increase in operational electricity consumption (demand met by grid-scale generation) from 178TWh in 2024–25 to around 229TWh by 2034–35.
Last financial year saw a record 4.4GW of new generation and storage commissioned. Over the next five years, additional investment of between 5.2GW to 10.1GW is expected to come online annually, often supported by government schemes.
This new capacity will help offset the notified retirement of 11GW of predominantly coal power stations over the next ten years, including Eraring, Bayswater and Vales Point (New South Wales) Yallourn (Victoria) and Callide B (Queensland).
Potential reliability gaps
Under the broader Government Schemes and Actionable Developments assessment, a minor reliability gap is identified in South Australia in 2026–27 (25MW) when Torrens Island B is advised to retire and EnergyConnect (Stage 2) is not yet fully commissioned.
Considering only the Committed and Anticipated Developments assessment, a small reliability gap (80MW) is forecast in Queensland in 2025–26 due to reduced generator availability, higher forecasts of maximum demand and delayed project commissioning. A reliability gap is forecast in South Australia in 2026–27 (39MW) when the Torrens Island B Power Station (800MW) is advised to retire.
This modelling did not consider AGL’s recent in-principle agreement with the South Australian Government to potentially extend Torrens Island B for two years. Should such an extension become formalised, no reliability gap would be forecast in these years.
Following the initial years of the ten-year outlook, reliability gaps are forecast in all mainland NEM regions, which have the potential to be managed as further projects progress towards meeting AEMO’s commitment criteria.
Due to the reliability gap identified in South Australia, AEMO will request the Australian Energy Regulator to consider an obligation on retailers and liable entities to enter sufficient contracts through the retailer reliability obligation (RRO) for South Australia in 2026–27.
As part of AEMO’s summer preparations, it has a panel of providers to procure additional reserves when reliability is at risk across the NEM.
In addition to the investment requirements to ensure supply can meet demand in all periods of the year, the report models reliability impacts from planned generation outages, gas shortfalls and drought conditions.
It also acknowledges system security challenges, critical to successful power system operation. AEMO will publish its annual reporting on system security in December, which identifies investments required to maintain power system security.
Keep moving
The Climate Council’s energy expert, Joel Gilmore, said that AEMO’s latest report comes in the build-up to the Federal Government’s commitment to a national climate target for 2035 of a 60-70 per cent reduction in emissions.
“AEMO is very clear that Australia needs to keep this clean energy investment moving. A strong 2035 target will give business and industry a clear policy signal, driving further investment and building an even more reliable, clean energy grid,” he said.
“This report spells out that there is a strong stream of new investments in renewable energy in Australia. Committed projects alone ensure we will have a very reliable electricity grid until after 2030, and there is a huge pipeline of potential projects that set us up well for rapid cuts in climate pollution.
“AEMO expects Australian homes and businesses will continue installing rooftop solar and batteries under the government’s home battery scheme. This is a win-win for Australians’ back pockets and the grid: cutting climate pollution and power bills while contributing to system reliability and resilience.
“At the same time the report shows there is no reason for governments to extend the life of coal power stations that are planned to close in the next few years. With a growing pipeline of wind, solar and storage projects, we can reliably power our homes and businesses without polluting coal.”
Climate Councillor and energy expert, Greg Bourne, said, “The shift to clean, reliable energy is the big first step in slashing climate pollution to ensure a safer future for our kids and grandkids, and it’s heartening to see this report confirm that it’s well underway.
“We need to maintain this momentum in our electricity grid to ensure ongoing reliability as we electrify transport and industrial processes and bring on new large energy users including data centres. Coordinating rooftop solar, home batteries, and even the batteries in our electric cars is an important opportunity to both improve the reliability of our grid and ensure Australian households benefit directly from the shift.
“Cutting back on coal is clearly doable and the faster we shift to clean energy the more benefits flow to businesses and communities. Governments at all levels must continue to stimulate the investment required to fast-track the renewables rollout – including providing certainty by setting a strong 2035 climate target.”
This feature appeared in the November edition of Energy.
