Key changes to delivery framework for the Integrated System Plan reflect challenges for Australia’s east coast energy system
The most significant changes to the delivery framework for the Integrated System Plan (ISP) since commencement of the ‘actionable’ framework in 2020 have been made ahead of the 2026 ISP. Several other changes to the National Electricity Rules (NER) were made through 2024 to manage the risks associated with the delivery of priority transmission projects identified by the ISP (the ‘actionable ISP’ projects).
These recent regulatory changes reflect key issues for Australia’s east cost energy system related to:
the practical role and development of gas;
the role of consumer energy resources (CER), and the ability of distribution networks to facilitate uptake; and
the timely development of transmission, and the role of governments and communities in this development.
In the short term investors, market participants and governments should be aware of these changes to the ISP, as they are likely to impact not only the proposed timing of key transmission projects, but also influence sentiment across the sector. In the longer term, governments and transmission network service providers (TNSPs) will likely need to leverage bespoke solutions contemplated under recent changes to the National Electricity Rules (NER) to ensure adequate investment in, and cost management of, transmission projects.
Where are we at with the 2026 ISP inputs and approach?
The ISP is delivered based on inputs, and a method-driven modelling approach. While the draft 2026 ISP is not expected to be published until December 2025, and the final 2026 ISP in 30 June 2026, these inputs and methods will be settled well in advance of these dates, mostly through consultation that is now in full swing.
The inputs for modelling for the 2026 ISP are being finalised. The 2025-26 Inputs Assumptions and Scenarios Report (IASR) closed for consultation in late March, with publication of the final 2025-26 IASR due to occur July 2025.
Some inputs are yet to be published. Two reports, the 2025 Network Expansion Options Report and 2025 Gas Infrastructure Options Report will provide additional inputs. They are also expected to inform the ISP methodology. A draft of these reports is not expected until May 2025, with consultation to follow.
Consultation on the method for the 2026 ISP modelling process recently closed. Submission on the ISP Methodology closed 14 April 2025. The Final ISP methodology is expected to be published in late June 2025.
Additional forecasting methods are being finalised or will not be consulted on. The Electricity Demand Forecasting Methodology, Demand Side Participation forecasting methodology, and Gas demand forecasting methodology provide for forecasting approaches that interact with the ISP Methodology.
What are the major changes to approach since the 2024 ISP?
The major methodological changes to the 2026 ISP compared to the previous version of plan result from the actions identified in the Energy Minsters response to a review of the Integrated System Plan (ISP Review) [1] and associated changes to the National Electricity Rules (NER)[2]. Given the timing of the ISP Review (published March 2024), the actions were not incorporated into the 2024 ISP. [3] These changes will flow primarily into the ISP Methodology which sets out the modelling and cost benefit analysis approach for the ISP, and will be supported by additional inputs identified in the 2025-26 IASR. In addition, AEMO is compelled to review the ISP Methodology every four years, and is doing so as part of this consult and update process. [4]
Highlights of the changes proposed by AEMO for the ISP Methodology for the 2026 ISP are:
Expansion of the gas supply model and development projections: changes to the NER [5] as a result of the ISP Review mean that the contents of the ISP must now include ‘gas development projections’ which may include demand, prices, capacity of relevant facilities. [6] AEMO proposes to incorporate gas development projections based on plausible gas development projections for ISP scenarios. The development model will not attempt to provide an optimal development pathway for gas development given the sole aim of the ISP is to optimise electricity infrastructure investments. [7]
Consideration of CER and distribution network investment at a more granular level: changes to the NER [8] mean that a ‘demand side factors statement’ detailing matters including how CER and demand manage schemes impact system development, must be included in the ISP. In addition, AEMO is proposing to consider whether CER capacity exceeds current and future distribution capability (including augmentation capability). [9] The method for doing so will be more fully articulated in the 2025 Network Expansion Options Report.
Enhancements to system strength: AEMO is proposing to reformulate the current system security constraint to allow synchronous condensers and other technologies to replace retiring synchronous machines. Remediation costs will be applied to the retirement of thermal units, and inverter-based resources.
Incorporation of REZs: AEMO plans to move to distinguishing between ‘flow path’ augmentations and REZ specific augmentations for the purposes of cost benefit assessment. AEMO also plans to accommodate multiple tranches of wind where material, and apply import limitation for REZs to optimise REZ expansions. [10] In addition, AEMO proposes to model future hydrogen electrolysers within renewable energy zones rather than at port to reflect latest energy transport cost assumptions. [11]
Revised optionality assessment for current and potential actionable ISP projects: Potential actionable ISP projects will be tested via a combination of the earliest in-service date (as advised by relevant transmission network service providers (TNSPs)) and an ‘actionable window’ that accounts for optionality. Projects will be tested within the actionable window and beyond the actionable window to determine the optimal timing project in ISP development paths.
What about the AER’s Cost Benefit Analysis Guidelines and changes to the National Electricity Objective?
It is unlikely that there will be substantial changes to the approach taken by AEMO in the 2026 ISP, as compared to the 2024 ISP, to account for recent emissions related amendments to the National Electricity Objective (NEO) and related changes to the AER’s Cost Benefit Analysis (CBA) Guidelines. This is because AEMO was bound to consider the amended NEO when developing the 2024 ISP, and as such the 2024 ISP already included emission reduction benefits as an additional class of benefit using the methodology for deriving an interim Value of Emissions Reduction (VER) agreed by Energy Ministers in February 2024. In addition, it also took into account the AER guidance on valuing emissions reduction (VER Guidance) published in May 2024. [12]
While it was not possible for AEMO to take account of the recent updates to the AER’s CBA Guidelines (published November 2024), in respect of valuing emissions reduction, the CBA Guideline is consistent with the AER earlier VER Guidance.
What about other recent transmission focused rule changes?
Outside of rule changes that directly impact AEMO’s development of ISP, there have also been a number of changes to regulatory arrangements for transmission development arising largely from the AEMC-led Transmission Planning and Investment Review. These changes to the NER (largely to Chapters 5 and 6A) align regulatory arrangements with the changing nature of large-scale transmission development, and seek to balance timely transmission development with consumer risk. In short:
TNSP financeability concerns can be considered by the AER and eventuate in a bring-forward adjustment of regulated cashflows [13]
Interconnector costs can be allocated between jurisdictional consumers based on Ministerial agreement [14]
Concessional finance (e.g. below-market finance) can now be treated as an external funding contribution for the purposes of the regulatory investment test for transmission (RIT-T), proportionate to the benefits shared with consumers [15]
TNSPs will be expected to comply with community engagement expectations when undertaking preparatory activities or preparing a RIT-T for an actionable ISP project [16]
In addition to TNSPs being able to seek regulated revenue approval alongside the feedback loop assessment, the most up to date inputs, assumptions and scenarios can be used when assessing an actionable ISP project via this mechanism [17]
A TNSP may apply for regulated funding for early project works for actionable ISP projects prior to completion of a RIT-T [18]
The AER may undertake targeted ex-post review of capital expenditure for actional ISP projects [19].
While these rule changes provide increased levels of flexibility, there is a risk that, in combination with significant state-led reforms for transmission development (for example, Queensland Priority Transmission Investments), there is reduced certainty about when and which groups of consumers will be footing the costs of multi-generation investments. Transparency to communities and taxpayers will be critical in ensuring that governments and network businesses can develop these assets at pace.
Rennie assists clients to navigate transmission regulatory frameworks. Message or email us to find out how we can support you.
References
[1] Energy and Climate Change Ministerial Council, Response to the Review of the Integrated System Plan, March 2024
[2] National Electricity Amendment (Better integration of gas and community sentiment into the ISP) Rule 2024 No. 25; National Electricity Amendment (Improving consideration of demand side factors in the ISP) Rule 2024 No. 26
[3] See, for example: AEMO, 2024 ISP, June 2024, p 36
[4] AER, Forecasting Best Practice Guideline, August 2020, section 2.4
[5] National Electricity Amendment (Better integration of gas and community sentiment into the ISP) Rule 2024, No. 25
[6] NER, cl 5.22.6(8)(i)
[7] AEMO, Integrated System Plan (ISP) Methodology, Issues Paper, October 2024, p 20
[8] National Electricity Amendment (Improving consideration of demand side factors in the ISP) Rule 2024 No. 26
[9] AEMO, Integrated System Plan (ISP) Methodology, Issues Paper, October 2024, p 24
[10] AEMO, Integrated System Plan (ISP) Methodology, Issues Paper, October 2024, p 34
[11] AEMO, Consultation paper – Draft ISP Methodology, 13 March 2025, p 47
[12] AEMO, 2024 ISP, Appendix 6 – Cost Benefit Analysis, June 2024, p 23
[13] National Electricity Amendment (Accommodating financeability in the regulatory framework) Rule 2024 No. 8
[14] National Electricity Amendment (Providing flexibility in the allocation of interconnector costs) Rule 2024 No.18
[15] National Electricity Amendment (Sharing concessional finance benefits with consumers) Rule 2024 No. 7
[16] National Electricity Amendment (Enhancing community engagement in transmission building) Rule 2023 No. 5
[17] National Electricity Amendment (Improving the workability of the feedback loop) Rule 2024 No. 4
[18] National Electricity Amendment (Bringing early works forward to improve transmission planning) Rule 2024 No. 17
[19] National Electricity Amendment (Managing ISP project uncertainty through targeted ex post reviews) Rule 2024 No.14
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