Consumers are “in many ways” leading the energy transition.
This is the view of the Australian Energy Market Operator (AEMO), which released its 2026 Integrated System Plan (ISP) on Thursday.
“Earlier, few households may have thought of what lay behind the three-point plugs, or even how much electricity they used,” the ISP states. “Now, there is everyday engagement on how they source electricity and big changes to how, and how much, they use it.”
Surging adoption of home batteries – a key consumer energy resource (CER) – has shifted the ISP narrative, even since AEMO released its draft ISP in December 2025.
While the draft ISP suggested 27 gigawatts (GW) of home batteries would be installed by 2050 under a ‘Step Change’ scenario*, the final ISP believes a 35GW home battery fleet can be expected by the midpoint of this century.
By 2050, AEMO expects around two-thirds of the dwellings with solar to be fitted with battery storage, and over half of these to be participating in a virtual power plant.
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Rooftop solar continues to shine
The National Electricity Market’s (NEM) rooftop solar capacity came down from 25GW in AEMO’s draft ISP to 20GW in the final iteration. Despite this, the market operator expects rooftop solar to continue its ascent under the Step Change scenario, with 36 per cent of suitable homes in NEM regions having rooftop solar today increasing to 47 per cent in 2035 and 56 per cent in 2050.
This would be driven by “ever-falling costs”.
“At that time, with many more dwellings, rooftop and small-scale solar capacity would be 87GW,” AEMO said.
AEMO highlighted how rooftop solar overtook grid-scale solar (11 per cent), wind power (15 per cent) and hydro (5 per cent) in electricity production in the first quarter of 2026, comprising 16 per cent of NEM supply.
The rise of CER is a cost-reducing factor for the optimal development path (ODP), which represents the lowest-cost way of reaching net zero by 2050. If CER adoption continues as it does, it would lead to lower grid-scale investment, AEMO believes.
“Households with solar and battery systems are often able to both meet their own needs and export to the grid during the evening peak,” AEMO said. “This reduces average evening peak grid demand by about 1 kilowatt (kW) per household, compared to solar-only households.”
AEMO said this would reduce wholesale energy prices in peak demand periods and create flow-on benefits for all NEM consumers.
Other inclusions
The net market benefits from transmission rose from $24 billion in the draft 2026 ISP to $28 billion in the final ISP, which maintains its projection that 6000km of transmission would need to be added to the NEM’s existing 44,000km network to support the ODP.
The 2026 ISP factors in distribution development for the first time, with $600 million of distribution network investment needed to meet the ODP. This includes $383 million to connect grid-scale generation and storage within distribution networks, and $214 million to support CER network refinements.
System security costs have also been added for the first time, amounting to $3 billion through to 2050 – down from the $3.6 billion forecast in the draft ISP. This relates to technologies needed to stabilise the grid as coal-fired generation retires, such as synchronous condensers fitted with flywheels, and grid-forming BESS that can provide frequency control, voltage stability and system strength services.
Under the Step Change scenario, the ODP requires $106 billion of investment to 2050 across grid-scale, generation, storage, firming and network infrastructure.
Read AEMO’s 2026 ISP here.
*Step Change is the likeliest of three scenarios AEMO has published as part of its 2026 ISP (46 per cent probability), with Slower Growth and Acceleration Transition (both 27 per cent probability) the other two scenarios. Step Change reflects an energy transition consistent with limiting global temperature rise to less than 2°C – higher than the 1.5°C objective.
