Australia’s energy transition continues to progress in 2026, driven by strong renewable generation growth, evolving policy frameworks, shifting market dynamics, and ongoing pressure from external global forces. This year, renewables reached record instantaneous penetration levels on the National Electricity Market (NEM), with more than three-quarters of grid demand supplied by wind, solar and hydro at peak periods. Australia’s rooftop solar sector continues to underpin this shift, contributing to a growing portion of electricity generation during the middle of the day thanks to new state government initiatives. Large-scale renewable capacity additions remain strong, supported by ongoing project approvals under the Large-scale Renewable Energy Target (LRET) and associated certificate market, with the Clean Energy Regulator reporting strong growth.
Emerging data and modelling indicate that wind and solar capacity will generate more electricity than coal and gas from 2026 onward, driven by the rapid growth of renewables and the retirement of ageing thermal coal assets. While coal generation has declined as a share of the mix, it remains operational in many regions due to reliability needs, and the timing of closures continues to be a policy and planning issue, most notably in Queensland and NSW. Australian Energy Market Operator’s (AEMO’s) system planning acknowledges that significant coal capacity will remain online into the late 2030s and beyond, providing firm energy while storage solutions scale up.
As 2026 progresses, project delivery across the sector remains uneven, with policy ambition, project announcements and investment commitments not always translating into equivalent rates of physical delivery. Achieving the 82% renewable energy target by 2030 remains challenging, with energy analysts at Nexa Advisory estimating that, at current build-out rates, only around 60% of the electricity generated in Australia’s biggest grid is likely to be renewable by 2030. Constraints relating to approvals, financing, supply chains and workforce capacity, together with ongoing planning and transmission infrastructure challenges, continue to affect the timing and execution of projects across the development pipeline and may delay the achievement of key targets.
Integrated System Plan
The Draft 2026 Integrated System Plan (ISP), published by the AEMO, outlines the roadmap for the least-cost investment in generation, storage and transmission to deliver a secure electricity supply out to 2050. The draft plan reflects extensive stakeholder consultation and reconfirms that renewables, paired with storage and firming capacity, will be the backbone of Australia’s energy future.
The ISP calls for 120GW of new wind and solar, 40GW of grid scale storage and hydro, 14GW of flexible gas and around 6000km of additional transmission infrastructure. It reflects extensive modelling and consultation, concluding that renewables firmed by storage, supported by gas and connected through upgraded networks remain the most cost-effective way to replace retiring coal generation as electricity demand nearly doubles by mid century.
Network operators such as Energy Networks Australia and Transgrid have stressed that new transmission delivers, in the long-term, significant system wide savings for consumers, while also emphasising the need for coordinated action, strong social licence and continued momentum to ensure the transition proceeds at the pace required.
The ISP highlights the scale of coordinated investment required. However, aligning planning assumptions with real-world delivery timelines remains an ongoing challenge, particularly where dependencies between generation, storage and transmission projects create timing risks.
Queensland Energy Roadmap 2025
Queensland’s new Energy Roadmap announced by the LNP Government in 2025 marks a clear policy shift away from renewable targets toward affordability, reliability and a mixed energy system. It replaces the 2022 Energy and Jobs Plan, prioritises lower household costs, maintains existing assets through a $1.6 billion Electricity Maintenance Guarantee, and encourages private investment alongside fossil fuels and renewables. While the Queensland State Government maintains a net zero 2050 commitment, the Roadmap sends mixed signals by repealing emissions targets and omitting a clear pathway to decarbonisation.
Coal and gas are highlighted as central to the new policy approach, and while renewables are not rejected entirely, it is clear only certain projects will advance. Coal-fired power stations will continue operating as long as they are economically and technically viable, potentially into the 2040s, while gas is positioned as a key ‘transition fuel’. Gas-fired generation capacity is expected to more than double by 2035, supported by new State-owned and private projects, reinforcing system reliability but complicating alignment with national emissions targets.
Renewable policy settings are also changing. Renewable Energy Zones (REZs) will be scrapped in favour of smaller, market-led Regional Energy Hubs, with large pumped hydro projects scaled back. Investment will be channelled through QIC’s Investor Gateway, and new rules, including a Code of Conduct for renewable developers and enhanced community consultation, will formalise this more localised, private-sector-led model.
NSW
New South Wales has secured sufficient project commitments to deliver over 70% of the minimum 12 gigawatts of renewable energy generation required by 2030, and has also contracted enough projects to satisfy the minimum long-duration storage targets for both 2030 and 2034. The State has made significant progress with its REZs, including the Central-West Orana REZ which is expected to support around 5,000 construction jobs and once complete, provide 4.5 GW of clean energy; enough to power 1.8 million homes. The broader pipeline includes large-scale wind, solar and battery storage projects with pumped hydro projects also in the mix. NSW Government action is also supporting grid upgrades and initiatives such as zero-emissions transport.
Victoria
Victoria has introduced a range of policies to reduce the State’s reliance on gas, including phasing out gas connections in new homes from 2024 and implementing its Gas Substitution Roadmap. Planning reforms are helping to speed up approvals for renewable projects, supporting developments such as the Glenrowan Solar Farm and Mortlake South Wind Farm, which will supply cleaner energy to around 170,000 homes. While the State has made significant progress through planning reforms, it will need to accelerate the rollout of its REZs to ensure its renewable energy targets continue to be met.
Transmission
The ISP calls for thousands of kilometres of new lines and interconnectors to connect renewable projects and replace retiring coal. The AEMO anticipates that close to 10,000km of new transmission will be needed by 2050, with half of this infrastructure forecast to be built over the next decade.
AEMO’s latest analysis shows that Australia’s energy transition is being slowed by structural bottlenecks, noting in particular that:
- almost every major transmission project is delayed, some by more than five years, due to global supply chain pressures that limit access to towers, conductors and transformers;
- a domestic skills shortfall requiring tens of thousands of additional electricians; and
- lengthy approvals processes which are further being complicated by community opposition.
Transmission Network Service Providers have limited purchasing power in global markets, with Australia’s demand for key equipment representing only around 0.6% of demand in advanced economies, while labour shortages are intensified by international competition for the same specialised workforce. At the same time, coal fired generators are nearing end of life, making timely delivery of new transmission essential to connect large scale renewables, integrate rapidly growing rooftop solar and batteries, and maintain system stability as the National Electricity Market undergoes its most significant transformation in decades.
In an effort to support the transmission bottleneck, the Federal Government has launched the ‘Rewiring the Nation’ program providing around $20 billion in concessional finance to expand Australia’s transmission network.
Focused on delivering priority projects identified in the ISP, including HumeLink, VNI West, Marinus Link, and REZs, it aims to unlock new renewable generation, reduce grid congestion, and enable the efficient integration of wind, solar, and storage across the NEM.
Capacity Investment Scheme update
As you may recall from previous editions of Emerging Issues, in 2023 the Federal Government launched the Capacity Investment Scheme (CIS), a revenue underwriting scheme to accelerate investment in renewable energy generation through wind and solar, and clean dispatchable energy such as battery storage. The Federal Government has since expanded the scheme’s national target from 32 GW to 40 GW of new capacity by 2030, alongside introducing a single-stage tender process to accelerate project delivery. Several tenders are currently in progress or recently closed, with results expected in early to mid-2026. The eighth tender in the CIS for the NEM is now open. This round aims to add 16 GWHh of clean and dispatchable energy storage to the NEM.
The scheme has been highly successful in attracting industry interest, with tender rounds significantly oversubscribed, indicating strong developer confidence in the revenue-sharing model.
While the scheme has successfully awarded contracts and underwritten a large pipeline of capacity, progress has stalled at the delivery stage, reflecting deeper issues including financing constraints, cost pressures, grid connection delays and uncertainty around revenue settings. None of the initial 15 government-backed wind projects have commenced construction despite being central to accelerating renewable deployment. As a result, there is a growing disconnect between projects announced under the scheme and those reaching construction, raising concerns about whether the policy can deliver the scale of new generation required within the 2030 timeframe without further reform or stronger execution mechanisms.
Offshore wind power
Australia’s wind energy sector remains a cornerstone of the nation’s transition to low-carbon power, with strong growth in onshore wind capacity contributing to a broader renewable energy deployment. However, the much-anticipated offshore wind segment development (which has a more predominant presence in Europe), once touted as pivotal to diversifying supply and supporting heavier electrification, has faced a series of setbacks in early 2026.
In 2025, several high-profile projects were cancelled or shelved including BlueFloat Energy’s Gippsland Dawn, Equinor’s Novocastrian project in the Hunter, RWE’s Kent Offshore Wind Project, and AGL’s Gippsland Skies, alongside delays to Victoria’s flagship offshore wind tender.
These cancellations reflect mounting pressures across the sector, including rising capital costs, supply chain constraints and ongoing policy uncertainty, which have collectively weakened short-term investor confidence and slowed momentum.
Despite these setbacks, several projects continue to advance through feasibility, environmental approvals and early-stage development, including Star of the South and Blue Mackerel, supported by federal ‘Major Project Status’ and an evolving regulatory framework. Over the next 12 months and beyond, the sector is expected to move beyond early-stage planning toward more concrete procurement and investment activity, with the first offshore wind auction anticipated and several projects progressing toward final investment decisions in that period. While the near-term outlook remains cautious, these developments suggest a pathway for gradual recovery and longer-term growth as market conditions stabilise.
Rooftop solar booms
Rooftop solar continues to be a dominant feature of Australia’s electricity system, with installed capacity expanding steadily across residential and commercial segments. High levels of adoption have made rooftop solar one of the largest sources of generation during daytime periods, with output increasingly shaping operational conditions in the NEM. In the first half of 2025, rooftop solar accounted for 12.8% of national electricity generation, supported by sustained household demand.
Australia remains on track to meet its 2030 rooftop solar deployment expectations, with distributed solar playing a central role in displacing grid demand during midday periods and contributing to periods of very high renewable penetration across the system.
As penetration levels increase, periods of excess daytime generation have become more frequent, particularly during low-demand, high-solar output conditions. This has placed greater focus on system flexibility, export management and the integration of distributed energy resources, including storage and demand response, to better align consumption with available supply.
From 1 July 2026, the Federal Government will launch the Solar Sharer Offer (SSO), an initiative that provides participating households with access to zero-cost electricity for a defined period during the middle of the day, when solar generation is typically at its highest. The scheme is designed to utilise excess daytime solar output in the National Electricity Market and applies regardless of whether a household has its own rooftop solar system. It will initially be rolled out in New South Wales, South Australia and South-East Queensland, with broader national implementation expected following further consultation.
Batteries and storage
Australia’s battery energy storage sector (BESS) is set for rapid expansion in 2026 and beyond, driven by rising solar penetration, increasing grid volatility and strong policy support through programs such as the CIS and Rewiring the Nation. Industry analysis expects around 2.5 to3.5 GW of new BESS capacity in 2026, building on a pipeline of roughly 60 GW under development. Projects are increasingly being delivered as 2-hour and 4-hour systems, often co-located with wind and solar, and are monetising across multiple revenue streams including energy arbitrage, FCAS markets, capacity contracts, and grid support services.
For policymakers, the key challenge is to streamline permitting processes, accelerate transmission upgrades, and ensure market access for hybrid and distributed storage, while maintaining consistent and transparent CIS and REZ frameworks to support long-term capital investment. At the same time, manufacturers and distributors are expanding their domestic presence in response to rising demand, improving supply chain resilience, reducing delivery timelines, and strengthening long-term system serviceability.
Outlook for 2026
Australia’s energy transition in 2026 reflects strong structural momentum alongside growing delivery constraints. Record renewable penetration, rapid rooftop solar uptake and accelerating investment in storage and transmission confirms that the shift toward a low-emissions electricity system is well underway. However, persistent bottlenecks in transmission delivery, project execution, workforce capacity and regulatory coordination continue to slow the pace at which policy ambition is translated into physical infrastructure.
While national schemes like the CIS and Rewiring the Nation provide a clear investment roadmap, concrete outcomes remain dependent on improving coordination across jurisdictions and accelerating on-the-ground delivery. Although emerging technologies such as large-scale batteries and offshore wind are beginning to scale, projects remain sensitive to financing conditions, supply chain pressures and complex permitting timelines.
Australia is largely on track for a predominantly renewable electricity system over the long term, but the gap between planning and execution will be decisive in determining whether the 2030 targets are achieved. Strengthening transmission build-out, streamlining approvals and maintaining consistent policy settings will be critical to sustaining investor confidence and ensuring the transition proceeds at the scale and pace required.