The Draft 2026 ISP. What It Is and Why It Matters
AEMO’s Draft 2026 Integrated System Plan is the national blueprint that charts how Australia will meet electricity demand, replace coal, integrate new technology and deliver emissions targets through to 2050 (1). The plan is produced every two years under the National Electricity Rules and is based on extensive modelling and consultation with more than 1,400 stakeholders. At its core sits the Optimal Development Path which is the least cost mix of renewable generation, storage, transmission and distribution required to maintain reliability as the grid transitions. According to the overview document the ODP confirms again, as the government has been telling us, that renewable energy connected through transmission and distribution, firmed with storage and backed by gas, remains the lowest cost way forward for Australia (2). This matters because the ISP is not simply a policy document. It is the planning instrument that underpins regulatory processes, informs private capital allocation and sets clear expectations for energy users, governments and investors. In short the ISP is the closest thing Australia has to a long term roadmap for energy security.
This report differs from the one discussed because the Draft 2026 ISP is a long-term planning document that determines Australia’s least cost pathway for new generation, storage and transmission out to 2050, while last week’s System Security report that we commented on last week focused on the near-term engineering requirements needed to keep the grid stable as the transition unfolds. The ISP deals with investment sequencing, capacity buildout and future demand, whereas the System Security plan deals with system strength, stability and operational limits. One sets the strategic roadmap, the other sets the technical rules that allow that roadmap to function.
Key Takeaways for Each Renewable Segment
The Draft ISP presents a clear picture of how the renewable mix will evolve. Grid scale wind and solar rise from 23 GW today to 120 GW by 2050 under the Step Change scenario. The overview document on page 1 illustrates that the total generation and storage capacity in the NEM needs to triple to meet rising demand. Solar sees substantial expansion at both the household and utility level with grid scale capacity reaching 63 GW by 2050 while distributed solar rises to 87 GW supported by 27 GW of small scale batteries .
Wind capacity remains critical despite a downward adjustment in total build because of improved capacity factor assumptions which increase generation per installed GW. The supporting commentary by David Leitch of the Renew Economy confirms the key reason for the lower headline figure is the revised wind traces that deliver higher output for each unit of capacity (3).
Storage is the quiet achiever of this ISP. Utility storage increases to 40 GW made up of shallow and medium duration batteries, supported by 6 GW of pumped hydro and the existing deep hydro fleet. This reflects AEMO’s assessment that battery costs continue to fall sharply. The ISP warns that grid scale storage will need to expand ahead of coal closures to protect reliability. Giles Parkinson of the Renew Economy highlights the rapid increase in the battery development pipeline which has risen from 3 GW in 2022 to 26 GW in 2025, reflecting developer confidence and falling cost curves (4).
Gas plays a firming role rather than a baseload role. Total gas capacity edges up slightly to 14 GW by 2050 but it is expected to run infrequently as batteries and pumped hydro take more of the daily and seasonal balancing duties. Coal capacity continues to decline although the retirement timeline now extends further due to Queensland policy settings. AEMO notes that by the 2030s many units become increasingly unreliable as they age with unplanned outages projected to increase materially. This reinforces the need for accelerated renewable and storage investment.
Why Investors Should Pay Attention
The ISP signals structural shifts that will shape the investment landscape for two decades.
First is the scale of capital required. The present value of future generation, storage, transmission and distribution investments in the ODP totals $128 billion which is a modest 2.8 percent increase from 2024 despite inflationary cost pressures. The overview document confirms that consumers stand to gain $22 billion in avoided system costs plus $2 billion in emissions benefits if the plan proceeds on schedule . That is a clear indicator of where the economic centre of gravity is moving. Second is the shift toward batteries as a transmission alternative. With transmission costs rising by almost 100 percent in some cases AEMO observes that well located battery capacity can offset the need for some network expansions.
This concept is reinforced by Ben Potter inthe Energy where he emphasises that falling storage costs have replaced several transmission proposals in the new draft ISP (5). Investors will see increasing opportunities in grid scale batteries virtual power plants and distribution level projects that help unlock latent consumer energy resources.
Third is the critical role of households. The ISP expects 30 percent of all electricity consumption to be supplied by rooftop solar and other customer energy resources by 2050. For equity markets this shifts value away from traditional gentailer models and toward businesses positioned to aggregate, manage or integrate distributed energy assets.
Finally the ISP provides important clarity on demand. Total electricity consumption is expected to rise from 205 TWh today to 389 TWh by 2050 driven by electrification of transport and industry. Data centre demand remains meaningful but is smaller than public debate suggests at roughly 29 TWh in 2050 compared with 76 TWh contributed by electrification. This helps investors prioritise where long term demand certainty lies.
What Happens Next
AEMO is now seeking written submissions on the Draft ISP by 13 February 2026 with the final plan due by the end of June 2026. The overview document sets out these next steps and encourages stakeholders to use the ISP Toolkit for detailed engagement. Once finalised the ISP becomes the reference point for regulatory investment tests, transmission approvals and market expectations. This means the investment window for projects aligned with the ODP is now open and the cost of delay is highlighted repeatedly in both the ISP and independent commentary.
The Parkinson article for example notes that delays in transmission and generation build out can erode consumer benefits by increasing overall system costs while the Potter analysis shows that delays of this kind can inflate costs by as much as 30 percent . For investors timing matters.
The Bottom Line
The Draft 2026 ISP reinforces Australia’s least cost pathway to a reliable low emissions grid. It confirms that renewables supported by storage remain economically superior to alternatives and that consumers are becoming the dominant energy producers. For investors, the opportunity set continues to expand across batteries, utility, solar, wind, distribution upgrades, and electrification technologies. The roadmap is clear. The challenge, as we know, is execution.
References
AEMO. Draft 2026 Integrated System Plan Full Report. 2025. https://www.aemo.com.au/consultations/current-and-closed-consultations/draft-2026-isp-consultation
AEMO. Draft 2026 Integrated System Plan Overview. 2025. https://www.aemo.com.au/consultations/current-and-closed-consultations/draft-2026-isp-consultation
Leitch D, Renew Economy, “AEMO’s latest ISP plots a steady course, but private sector is running out of excuses.” 10 December 2025. https://reneweconomy.com.au/aemos-latest-isp-plots-a-steady-course-but-private-sector-is-running-out-of-excuses/
Parkinson G, Renew Economy, “ISP warns of missed targets and added costs from delays and as LNP throws coal spanner in the works.” 10 December 2025. https://reneweconomy.com.au/isp-warns-of-missed-targets-and-added-costs-from-delays-and-as-lnp-throws-coal-spanner-in-the-works
Potter B, The Energy, “ISP flags less transmission, more solar, batteries.” 10 December 2025. https://theenergy.co/article/isp-flags-less-transmission-more-solar-batteries
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