Why $21bn in grid projects may not be enough to secure system stability

The Australian Energy Market Operator’s (AEMO) Draft 2025 Electricity Network Options Report outlines $16–21bn in priority transmission and distribution projects needed to support the National Electricity Market (NEM) as it transitions to higher levels of renewable generation. 

Without parallel investment in system strength, inertia services, and virtual transmission, AEMO warns that reliability risks will increase.

Here are the top-level findings: 

$16–21 billion in priority transmission projects identified

AEMO estimates between $16 billion and $21 billion worth of actionable and future network projects are required to support the efficient delivery of renewable energy and ensure system reliability.

These projects are part of the Integrated System Plan (ISP) framework and are crucial to meet the forecasted rise in renewable generation and associated dispatchable storage needs.

The report confirms that these investments remain broadly consistent with the 2022 ISP but incorporate updated cost, delivery, and risk factors based on more recent developments. It also acknowledges rising construction costs and labour shortages as ongoing challenges.

Urgent need for system strength and inertia services

A key theme throughout the 2025 ENOR is the increased need for system strength, inertia, and other essential system services as coal-fired generation retires. AEMO highlights that:

• At least 32 GW of new renewable generation and 9 GW of storage is forecast to connect by 2030.
• Without careful management, this could undermine system stability, particularly during periods of low synchronous generation.

The report outlines options including synchronous condensers, grid-forming inverters, and market reforms aimed at procuring necessary system services. It stresses that these investments need to be made in parallel with transmission builds — not after them.

Prioritised transmission corridors confirmed

The draft report reiterates the importance of transmission corridors identified in previous ISPs, including:

• HumeLink (NSW)
• VNI West (Victoria–NSW Interconnector)
• Marinus Link (Tasmania–Victoria Interconnector
• Project EnergyConnect (SA–NSW Interconnector)

AEMO provides updated cost, timing, and staging information for each, noting community engagement and land access as ongoing complexities. Delivery timing for some projects has shifted slightly due to approvals processes and market conditions, but overall sequencing remains similar to earlier ISPs.

Distribution networks now in focus

While the ISP historically focuses on transmission, this ENOR expands the conversation to include distribution network readiness:

• Electrification of transport and heating is expected to increase distribution load.
• Distributed Energy Resources (DER) like rooftop solar and batteries require flexible, modernised distribution systems.
• AEMO emphasises closer collaboration with distribution network service providers (DNSPs) and points to emerging national standards and frameworks as critical enablers.

This signals growing alignment between transmission and distribution planning at a national level.

Growing role for virtual transmission and non-network options

AEMO acknowledges that while physical transmission builds remain essential, virtual transmission and non-network solutions like Dynamic Line Rating (DLR), grid-scale batteries, and demand-side participation are increasingly viable, especially as short-to-medium term measures to alleviate constraints.

The report encourages proponents and governments to accelerate these technologies alongside major transmission builds to avoid capacity shortfalls.

Project delivery and risk management now front and centre

One of the most marked shifts in tone from previous ENORs is the emphasis on risk management in project delivery:

• AEMO notes escalating costs due to global supply chain issues, labour shortages, and materials inflation.
• The report stresses the need for multi-staged investments with clear trigger points and decision gates.
• Government support, both financial and regulatory, is positioned as essential to keep projects on track.

Act now, strategically

AEMO’s final recommendation to governments, industry, and investors is unequivocal:

Australia must continue building its transmission backbone and supporting systems now to ensure a secure, reliable, and affordable transition. However, this must be done with flexibility and risk management in mind — acknowledging market changes, technological evolution, and community sentiment. 

The draft 2025 ENOR provides a refreshed national blueprint aligned with the 2022 ISP’s vision but adapted for the latest conditions and learnings.