Integrated System Plan – What Should We Expect?

The release of an expert study of last year’s autumn wind drought in Australia by consultancy Global Power Energy[i] this week raised some questions about the approach used by the Australian Energy Market Operator’s in its 2024 Integrated System Plan (ISP). The ISP has been subject to debate before. For example, there has previously been criticism that some of the ISP’s modelling assumes what amounts to “perfect foresight” of wind and solar output and demand[ii], rather than a series of inputs and assumptions.  

The ISP is produced every two years and with the draft of the next ISP (2026) due for release soon, it is useful to consider what it is and what it is not, along with what the ISP seeks to do.

Modelling

The ISP started as a planning document for transmission businesses but has become: 

 “a roadmap for the transition of the National Electricity Market (NEM) power system…. [which] outlines the mix of generation, storage and network investments required to meet both consumer needs and government energy and emissions targets between now and 2050”[iii]. 

But the ISP doesn’t forecast what will happen in practice. Rather it seeks to model what would be required based on Government targets and how the energy system would need to change to meet those targets.  A big driver in the ISP’s development has been the need for the market operator to consider jurisdictional emissions and energy policies. AEMO’s Input and Assumptions Scenarios Report sets out the policies covered in the ISP.   Still, of all policies the Federal Government’s 82 per cent renewable electricity target by 2030 remains the dominant one in terms of what is modelled.  

As we have previously written (What does the Queensland Energy Roadmap mean for the 2026 ISP?) this has sparked debate about whether the ISP can be characterised as a forecast of the optimal future energy grid that policymakers and industry should be working towards, or a modelling exercise to back-solve how to meet government targets. 

The last ISP went to some lengths to communicate its limitations. For example, in discussing its Optimal Development Path, which is based on the combination of transmission, generation, storage, and system services it believes would meet reliability, security, and emissions needs at lowest cost, it said “identifying the ODP is only a very small contribution to Australia’s energy future. It’s what happens next that counts”[iv].  While the ISP seeks to identify strategic shifts in the market this intent is not always understood by all readers and can get lost in the broader political debate.

The ISP seeks to model how the National Electricity Market (NEM) could transition from coal-fired generation based on government policies and the anticipated and committed new generation and the expected timing of capacity withdrawals from the market.  It also looks at likely changes in operational demand as a result of economic conditions, new technology (think hydrogen or AI), energy efficiency and distributed energy resource penetration.

The ISP also needs to incorporate jurisdictional changes. For example, Queensland’s most recent Energy Roadmap released earlier this year which changes the approach to that state’s energy transition.

Scenarios

The 2024 ISP presented three scenarios – step change, progressive change, and green energy exports – and nominated the Step Change scenario as the ODP.  AEMO stated that it continued to find that renewable energy connected with transmission, firmed with storage and backed up by gas-powered generation is the lowest cost way to supply reliable electricity to homes and businesses throughout Australia’s transition to net zero.

When considering the impact of renewables, the market operator’s ISP applies “historically observed” wind and solar conditions to assess how much renewable energy would be available and required. As noted above there has been debate around its modelling.

Developing such a broad assessment of what the future grid could look like based on current government policies and reforms is always going to be extremely challenging as it is open to events, changes in technology, and a range of circumstances that can and do change.  In the last ISP the market operator considered a range of risks to the delivery of the ODP, including supply chain constraints, cost pressures, social licence issues and shortages of skilled labour.

Broader Sensitivities

That was welcome, but these sensitivities could be broadened and improved by more fully quantifying the impact of all the various risks identified and by assessing the compounding impacts of these. If multiple risks materialise, a combined sensitivity analysis could articulate what these challenges might look like, and, ideally, identify an alternate path.  

The 2024 ISP placed a heavy reliance on coordinated energy resources such as rooftop solar, home batteries, and virtual power plants — an assumption that requires participation by consumers. It will be an interesting to watch as to whether the next ISP has similar heavy reliance and if this is accompanied by deeper sensitivity analysis to understand the trade-offs and alternatives. For example, have policies like the Cheaper Home Batteries Scheme increased confidence in these outcomes being realised? Alternatively, if the policy settings for the identified investments are not in place, and the required investments do not materialise, what’s the next best alternative and what’s the impact on the net market benefits? More sensitivity analysis could help the ISP become something that evolves and plays a role in supporting both market participants and policy makers in their decision making to best support the energy transition.

Other changes since the last ISP include the timing and cost of the transmission builds that have been identified.  We have seen project delays for a number of reasons and anticipated costs have increased, so how does that and the changed timelines impact the cost benefit of the approved projects?

There has also been the announcement of Queensland’s new energy roadmap with its intent to keep coal plant in the grid for longer which will make modelling accelerated coal plant closure trickier.

Finally, a review of the ISP was undertaken last year and in their response energy ministers outlined actions they had agreed to shift the plan to a “true whole-of-system plan”.

Key suggested actions included:

• Integrating a more detailed view of gas
• Enhancing energy demand forecasting
• Deeper analysis of coal-fired generation
• Improving generation and storage
• Enhanced analysis of system security.

AEMO has said it is looking at what could be delivered for the 2026 ISP[v].

Conclusion

AEMO’s nominated ODP is intended to reflect the preferred pathway amongst the options it considers based on cost, reliability and system security outcomes as well as its alignment with government emissions targets and net zero ambitions.

The ISP represents a comprehensive and broad, national plan to help steer the electricity system through a once-in-a-generation energy transition: it's a useful tool for consideration of what needs to occur to meet government aims.  But it is built on a set of assumptions and scenarios that drive its modelling. Given it deals in decades, that there will be shifts in available technology (both the type and cost), and needs to consider a broad range of sensitivities, such the increasing importance of modelling weather patterns, shifts in policy settings and community support, we can expect to see assumptions change. Broadening the sensitivity analysis could be one way to help increase its value.

[i] Global Power Energy describes itself as “an advisory firm led by experts with extensive technical, regulatory and commercial experience across AEMO, generators, networks, and OEMs”. It is led by Greg Elkins.

[ii] Submission to Select Committee on Energy Planning and Regulation in Australia regarding Integrated System Plan Flaws - The Centre for Independent Studies

[iii] AEMO | 2024 Integrated System Plan (ISP)

[iv] draft 2024-isp.pdf, p. 73

[v] Integrated System Plan