Energy grid overhaul costs hit $128b, coal remains critical
Energy grid overhaul costs hit $128b, coal remains criticalThe Australian Energy Market Operator (AEMO) draft 2026 integrated system plan (ISP) indicates that current strategies may not deliver energy security or climate objectives.The ISP confirms that coal will be required to stabilise the National Electricity Market (NEM) until 2049 — twelve years longer than previously forecast — and transmission cost estimates have increased by up to 100% in real terms.Consistent with previous reports, electricity consumption is expected to nearly double by 2050, driven by electrification of transport, expansion of data centres and industry shifting from gas to electricity. At the same time, two-thirds of the remaining coal fleet would close by 2035, with all due to retire by 2049.AEMO chief executive Daniel Westerman says renewable energy, firmed with storage, backed up by gas and connected with upgraded networks remains the least-cost roadmap to meet Australia’s energy needs.“Extensive stakeholder consultation and modelling of thousands of potential investment combinations has identified the least-cost option,” he said.Consumers will continue to play a major part in Australia’s energy transition, with expected investment in 87GW of small-scale solar, 27GW of behind-the-meter batteries and 9GW of coordinated storage from electric vehicles by 2050.“Australian consumers are world leaders in rooftop solar and are now adding home batteries and electric vehicles,” Mr Westerman said.“If those consumer devices can respond to market signals through their retailers, it will result in a lower cost power system for everyone.”This analysis underscores the need to continue to progress with investments identified in the ISP so the energy transition can deliver the lowest cost outcomes to consumers without placing more pressure on household incomes and industrial competitiveness.“While momentum in investment and delivery continues to build, challenges remain in delivering essential infrastructure at the pace required. Slower progress will erode benefits to consumers and present risks to reliability,” Mr Westerman said.To deliver the least-cost optimal development path (ODP) proposed in the draft by 2050, it would require about 120GW of grid-scale wind and solar, around 55GW of dispatchable storage (including batteries and pumped hydro) and 14GW of flexible gas.A further 6,000km of new transmission lines would also need to be added — a 13% expansion on today’s 44,000km network, but down from the 10,000km stated in the plans 2024 rendition.Since the draft 2024 ISP release, multiple renewables and grid expansion projects across Australia have been scrapped or delayed.In June the Queensland Government walked away from plans to build the $1b Moonlight Ridge wind farm. In October Snowy Hydro ordered the comprehensive review of its $12b Snowy 2.0 pumped hydro project in NSW due to material cost pressures.Future Coal chief executive Michelle Manook says the report challenges the ideology of a “renewables-only” transition.“It confirms that Australia’s current pathway is misaligned with engineering and cost realities, or the original intent of the Paris Agreement,” she said.“Major economies, including Japan, India, China and the US, continue to invest in modern, and increasingly abated, coal solutions across the value chain… Australia has been left behind, while other nations modernise their coal value chains to balance economic and energy security with emissions reductions and sustainability goals.“Climate policies need to reflect engineering reality, not ideology, otherwise Australians will continue to face rising costs, worsening reliability and still fall short of climate targets.”In October, the Queensland Government released an energy roadmap, outlining that coal will continue to underpin affordable and reliable energy supply to the state for as long as needed with gas emerging as a critical technology for system reliability.AREEA chief executive Steve Knott says it’s encouraging to see the Queensland Government acknowledge that reliable, affordable energy still depends on a strong resources industry.“The Government’s commitment to progressing enabling projects like CopperString, unlocking the North West Minerals Province and expanding gas supply means more investment, more production and more high-quality Queensland jobs,” he said.“But the roadmap will only deliver if governments at all levels work together to address logjams in the approvals system and ensure projects are not stuck in bureaucratic limbo, putting Queensland’s competitive edge at risk.How the Queensland Government’s decision to allow state-owned coal power stations to run “to the end of their technical lives” will align with climate targets is yet to be confirmed.In November, the Climate Change Authority (CCA) reported that the pace of emissions cuts would need to triple to meet Australia’s legislated 2035 target of reducing 2005-level carbon pollution by 62-70%.The CCA found the electricity and energy sectors were making the fastest gains — contributing to half the nation’s emissions reductions over the past year — improving the prospects for other sectors of the economy to decarbonise as they electrify.The final 2026 ISP is expected to be released in June next year.
