Transmission takes centre stage in AEMO’s 2026 ISP update

A shift in integrated system planning

The Australian Energy Market Operator's (AEMO) webinar on the 2026 Integrated System Plan (ISP) marked a shift in Australia's energy transition. While renewable generation remains fundamental to achieving net zero, the update re-centres attention on how the electricity system is planned, coordinated and delivered.

AEMO representatives, including executive general manager of system design, Nicola Falcon and manager of strategic planning, Samantha Christie; reinforced that the transition will depend on proactively planning transmission, storage and generation as an integrated system rather than responding to constraints after they emerge.

Opening the webinar, Falcon said the ISP “is so much more than just a transmission plan.”

Falcon explained that the 2026 ISP reaffirms that renewable energy, connected by transmission and distribution, firmed with storage and backed up by gas, presents the least-cost way to supply secure and reliable electricity to consumers through to 2050 as coal plants retire while meeting government policies.

Global Power Agency principal advisor, Geoff Eldridge, said that the update is not simply calling for more transmission. Instead, it “points towards earlier but more adaptive planning: identifying system constraints, preserving options and allowing individual projects to be deferred, resized or replaced as demand, storage and generation patterns change.”

Energy Edge’s managing director Josh Stabler, described the webinar as propounding a repeated truism: “transmission is the key to the transition”.

He said: “Transmission and distribution are, and should be, a natural monopoly.”

Whilst accepting transmission’s central role in the transition, Stabler is critical of a debate that pays too little attention to the regulated cost of building and funding that network expansion.

“The network revenue (i.e. our network charges) is regulated by the AER. But that regulation doesn’t make it unchanging. The network charges for the AusGrid DMO have lifted from $538 to $778 per customer in four years.”

“No one wants to talk about Weighted Average Cost of Capital (WACC). But here we are.”

“Calculating the regulated network revenue requires the Return on Debt (long-term rolling debt costs) and Return on Equity (allowing a fixed equity premium). These are the same ingredients for calculating WACC.”

The research underpinning the plan

A key feature of the updated ISP is AEMO’s approach to uncertainty. Rather than relying on a single forecast, the plan incorporates assumptions around electricity demand, electrification, consumer energy resources, coal retirements, renewable generation, storage deployment and industrial growth.

By modelling multiple future pathways, AEMO recognises that Australia’s energy transition will continue to evolve while providing a framework capable of adapting as market conditions change.

Falcon explained that the ISP is designed to identify an “Optimal Development Path (ODP) for generation and storage” rather than predict one fixed future. This approach allows investments to remain valuable across multiple scenarios and shifts planning towards a more flexible, system-wide approach.

But Josh Stabler is concerning that the ISP’s transmission assumptions may understate the real financing costs of network investment, creating a more favourable picture of affordability than recent regulatory determinations would support.

Stabler said: “In ISP2026 (p117), AEMO changed the transmission WACC from 7% to 3%, down 57%.”

“But you can’t just say WACC, you need two frames of reference: (a) nominal or real pricing and (b) before or after tax. Spoiler alert: Real Pre-Tax WACC.”

“A recent AER final determination for United Energy put the Pre-Tax Real WACC at 4.31%; that’s 44% higher than the ISP's 3.0%,” he said.

Transmission as enabling infrastructure

The webinar emphasised the changing role of transmission within Australia’s energy system. Rather than following renewable development, transmission is increasingly expected to lead it by establishing network capacity before projects seek connection.

Christie highlighted that network constraints are becoming one of the greatest barriers to efficient renewable deployment. Transmission is therefore no longer viewed simply as infrastructure that transfers electricity between regions, but as enabling infrastructure that supports renewable generation, storage, emerging industrial demand and system resilience.

This shift has significant implications for the sector. Earlier transmission planning has the potential to reduce connection delays, minimise congestion, improve system strength outcomes and provide greater investment certainty for developers.

Renewable Energy Zones and coordinated development

The ISP update also reinforced the importance of Renewable Energy Zones (REZs). Christie highlighted that REZs are increasingly being planned as integrated energy systems rather than simply locations with strong renewable resources.

By combining generation, transmission, storage and future demand within a coordinated framework, AEMO aims to improve network efficiency, increase investment certainty and reduce long-term system costs.

For developers, this provides greater visibility around future network availability and connection opportunities, while governments and transmission businesses gain opportunities to coordinate infrastructure investment more effectively.

Adaptive implementation and preserving options

The ISP also prioritises adaptive implementation. Rather than committing immediately to every transmission project, AEMO’s approach supports identifying projects early so they become decision-ready while allowing their timing, scale and configuration to evolve as system needs change.

This reflects the ISP’s focus on preserving optionality. Earlier planning does not necessarily mean earlier construction; instead, it allows future investment decisions to incorporate updated information relating to demand growth, renewable deployment, storage technologies and coal retirements.

“It looks like we have a goldilocks situation. 7.0% was too high. 3.0% is too low. Perhaps we can get the right temperature by ISP2028.”

The webinar also highlighted continued assessment of network and non-network alternatives before major investment decisions are finalised. This reduces the risk of over-investment while ensuring critical infrastructure can be delivered when required.

What the ISP means for industry

For businesses across the energy sector, these changes extend beyond transmission planning.

Renewable developers are likely to place greater emphasis on alignment with ISP priorities when selecting project locations, while investors may favour projects positioned within planned transmission corridors or Renewable Energy Zones. Transmission businesses face growing expectations to coordinate planning with governments, developers and market operators rather than responding solely to individual connection requests.

The updated modelling assumptions also recognise the growing influence of electrification, data centres, hydrogen production and large industrial loads on future electricity demand. These emerging industries will influence where transmission investment is required, reinforcing the need for flexible infrastructure planning.

Coordination will determine success

Despite the opportunities presented by integrated planning, successful implementation will depend on coordination across the energy sector.

The webinar highlighted collaboration between governments, regulators, transmission businesses, developers and market participants as critical to delivering the Optimal Development Path. While AEMO can identify the preferred investment pathway, delivery relies on multiple organisations progressing approvals, investment decisions and construction within compatible timeframes.

Looking ahead

The July 2026 ISP update represents more than a revision of modelling assumptions or transmission projects. It signals a broader change in Australia’s energy planning philosophy.

By prioritising integrated planning, adaptive implementation and earlier transmission development, AEMO recognises that the success of the energy transition will increasingly depend on how effectively generation, transmission, storage and demand are planned together.

For industry, competitive advantage will increasingly come from understanding how individual investments contribute to the broader electricity system, rather than focusing solely on project-level economics. The ISP therefore positions transmission not simply as supporting infrastructure, but as the strategic platform upon which Australia’s future energy system will be built.