Australian electricity and gas markets – May 2026 Update

What you need to know

The reform agenda continues to roll forward. We have highlighted the many reforms published in April that affect the energy sector.

The big news is:

• Significant capital gains tax changes for foreign residents in the renewable energy sector;
• A great snapshot of the operation of the NEM and the WEM in the AEMO – Quarterly Energy Dynamics; and
• The NEM Review Implementation apparently remains on track (but still not in Queensland).

Capital gains tax changes for foreign residents in the renewable energy sector

• The measures are broader than the previous announcements and contain several unexpected elements (including application of elements of the measures with retrospective effect back to 2006).
• The proposals broaden the scope of assets including Australian Renewable Energy Assets that fall within Australia’s foreign resident CGT regime (with some retrospective effect), strengthen the rules applying to indirect disposals, and introduce additional compliance requirements for certain higher-value transactions.
• The draft legislation introduces a 50% CGT discount for eligible foreign residents who dispose of Australian Renewable Energy Assets in the future before 30 June 2030. There are significant issues with the operation of the 50% discount in respect of renewable assets including:
  • Whether the discount should apply for a longer period, given the lead time and capital costs involved in developments in the sector which are largely undertaken by foreign residents; and
  • The narrow definition of Australian Renewable Energy Asset, which excludes energy storage facilities and overlooks the infrastructure investment in the renewable energy zones.

AEMO – Quarterly Energy Dynamics

We have summarised the key findings (such as volume and pricing trends) of the Q1 2026 report from both the NEM and WEM.

NEM Review Implementation

Implementation of the NEM Review recommendations remains on track (but still not in Queensland). The Department of Climate Change, Energy, the Environment and Water has confirmed:

• South Australia will implement the Market Making Obligation (MMO) in July 2026 – We are still waiting for publication of the draft legislation to support the Market Making Obligation under the FERM following the consultation paper issued by the Department of Energy and Mining (SA) in January 2026; and
• The industry-led contract co-design process will commence in Q2 2026, and the outcomes will be formalised in the National Electricity Law and Rules over the course of 2026 – The working group has been announced and will clearly involve stakeholder consultation.

Highlights for April 2026

In this update, we take a look at the latest rule changes and market updates published in April 2026, which affect participants in the Australian electricity and gas markets.

National Electricity Rules

Draft determination - AEMC considers current electricity planning rules are sufficient

On 16 April 2026, the Australian Energy Market Commission (AEMC) released a draft determination proposing not to make a rule in response to a rule change request submitted by the Centre for Independent Studies (the Centre).

The Centre proposed changes to the way the Australian Energy Market Operator (AEMO) develops the Integrated System Plan (ISP) and the cost information that the ISP provides.

The three issues raised by the proponent were:

• The ISP does not adequately account for uncertainty as to when jurisdictions’ emissions reduction and renewable energy targets will be met or whether they may change in the future.
• The ISP analysis should include a broader range in determining ‘whole of system’ costs and identifying the optimal development path.
• Additional information should be published relating to system costs and the cost implications of individual jurisdictional policies as part of the ISP.

The Commission's preliminary view is that changes to the National Electricity Rules are not required to address the issues raised by the proponent, as the current rules already have sufficient flexibility to consider the risks raised by the proponent.

Submissions to the draft determination are due 28 May 2026.

Draft determination - Enhancing distribution network planning & reporting

On 23 April 2026, the AEMC published a draft determination and a more preferable draft rule to enhance distribution network planning and reporting.

Energy Consumers Australia submitted the rule change request in early 2025 seeking to reform the distribution annual planning process. The draft rule addresses emerging challenges for long term distribution planning by requiring that Distribution Network Service Providers (DNSPs) adopt a new distribution network planning process.

The draft rule includes:

1. A new distribution network development plan (DNDP).

This would require each DNSP to:

• publish a DNDP every five years, aligned with their regulatory proposals.
• adopt a 20 year planning horizon for their DNDP
• use the Australian Energy Market Operator’s Inputs, Assumptions and Scenarios Report as the baseline for their own scenarios
• explain how it has engaged with relevant stakeholders, including consumers, during the development of its DNDP
• identify emerging network limitations, risks and opportunities, including the role of non-network options and CER.

2. A requirement for DNSPs to publish an annual update.

The draft rule would also facilitate enhanced data reporting by establishing a new principles-based framework that would improve the collection and publication of distribution network data.

Submissions close 4 June 2026.

National Gas Rules

AEMC finalises rules for customers leaving the gas network

On 2 April 2026, the AEMC finalised Australia's first national framework for customers who want to undertake an abolishment to permanently remove their gas connection.

Until now, there have been no consistent national rules for customers wanting to abolish their gas connection. This has led to confusion about the difference between disconnection (which can be reversed) and abolishment (which is permanent), and uncertainty about who should pay.

The new framework will be implemented in phases from 2027.

AER releases 2026 Wholesale gas reserves price assumptions report

On 15 April 2026, the Australian Energy Regulator (AER) published its third wholesale gas reserves price assumptions report.

The analysis identified a downward shift in the 2025 contracted reserves price assumptions compared to last year and a narrowing of the spread of the uncontracted price distributions, potentially indicating a more consistent forward view on future gas prices at the time of reporting.

National Energy Retail Rules

AER publishes October – December 2025 retail performance report

On 2 April 2026, the AER published its quarterly retail performance report for the October–December 2025 period.

This is the first report published since the introduction of a requirement for retailers to report new data on different customer segments in the retail energy markets. This new data provides additional insights on customers in embedded networks, customers affected by family violence, customers registered as requiring life support equipment, meter and tariff types and expanded debt and billing complaint metrics.

Some of the key insights include:

• The average electricity and gas debt held by customers participating in a hardship program has increased significantly since the same time last year.
• Customers affected by family violence experience higher levels of payment difficulty and are significantly more likely to be in a hardship program or on a payment plan.
• Those who rely on life support equipment depend on a reliable supply of energy to keep their equipment operational. However, customers who are registered as requiring this protection but have not provided the necessary medical confirmation are at risk of being deregistered, which means they could be disconnected in accordance with the NERR.
• The vast majority of customers in an embedded network are on off-market contracts. While these customers are reported as having similar rates of electricity debt to customers overall, they are significantly less likely to be receiving assistance via a payment plan or a hardship program.
• The transition to smart meters is progressing.

Other publications

Draft legislation – Updating foreign resident CGT regime

On 10 April 2026, the Australian Government released the Treasury Laws Amendment Bill 2026: Renewable energy asset discount capital gains for foreign residents as exposure draft legislation. The draft proposes to reform the foreign resident capital gains tax (CGT) rules.

The draft legislation introduces a 50% CGT discount for eligible foreign residents who dispose of Australian renewable energy assets. This discount would only apply prospectively and only to gains realised prior to 30 June 2030.

The Exposure Draft Explanatory Materials outline that the discount responds to stakeholder requests for transitional relief to support investment into the Australian renewables sector as part of the energy transition.

A consultation period for the draft was open until 24 April 2026.

We take a closer look at the exposure draft legislation here.

We are also aware that there have been several submissions made which have raised issues with the operation of the 50% discount in respect of renewable assets including:

• Whether the discount should apply for a longer period, given the lead time and capital costs involved in developments in the sector which are largely undertaken by foreign residents; and
• The narrow definition of Australian Renewable Energy Asset, which excludes energy storage facilities (other than perhaps where they are charged only by renewable energy) and overlooks the infrastructure investment in the renewable energy zones.

AEMC - Network pricing reform could cut household electricity bills and deliver $6 billion in system savings

On 23 April 2026, the AEMC released new modelling that shows reforming how electricity network costs are recovered would lower costs for most households, potentially saving customers $6 billion over 15 years.

The modelling shows reform would lower costs for households with or without solar or batteries, and some families could save up to $740 a year on their electricity bills by 2040.

Around two-thirds of households who are currently unable to have solar or batteries are projected to be better off.

The modelling assumes a scenario in which retailers take no other action and directly pass network costs onto consumers, and there are no other consumer protections applied.

The report is a part of the AEMC's Pricing Review, which presented its Draft Report on 11 December 2025. The Draft Report received 2,712 submissions, available for viewing on the project page, and a public forum was held in April 2026.

The Final Report is currently being prepared and is expected to be published in June 2026.

Final Report - Reliability Panel prioritises stability for consumers with proposed change to reliability standard for 2028-2032 

On 23 April 2026, the Reliability Panel published the Final Report for its Reliability Standard and Settings Review (RSSR). Following an extensive period of analysis, modelling and consultation, the Panel has made recommendations regarding the reliability standard and market price settings to apply from 1 July 2028 to 30 June 2032.

The recommendations include a modest adjustment to the reliability standard to reflect increasing costs and changing consumer preferences, and no changes to market price settings.

The Reliability Panel’s detailed market settings advice includes:

• modest change to the reliability standard to 0.003 (from 0.002) percent expected unserved energy (USE) over the review period - equivalent to a long-term average of approximately 16 minutes (from 10 minutes) of generation-driven outages per customer per year;
• no changes to the current market price cap (MPC) at $22,800 and cumulative price threshold (CPT) at $2,235,600 in 2022 dollars;
• no changes to the market floor price (MFP) at -$1,000/MWh, with a recommendation that the AEMC consider revising the rules to clear the market at the MFP during minimum system load conditions – on 1 May 2026, a rule change request was published by AEMC proposing to require that the spot price be set at the market floor price during minimum system load level 3 conditions, and to establish a supporting MSL governance framework in the (Minimum System Load framework and floor price proposal | AEMC);
• no changes to the administered price cap (APC) and administered floor price (AFP) at $600/MWh and -$600/MWh, respectively.

Although the Panel acknowledges that the modelling was completed prior to the latest period of geopolitical volatility, the Panel is confident that both the modelling methodology and results are robust for the relevant review period and not materially affected by current movements in international gas and fuel markets.

AER publishes draft FERM Scheme Regulator guideline

On 29 April 2026, the AER published the draft FERM Scheme Regulator guideline for South Australia’s Firm Energy Reliability Mechanism (FERM) Scheme.

The FERM scheme is intended to support the security, reliability and affordability of South Australia’s electricity supply as the state increases its use of renewable energy.

The draft Guideline explains how the AER proposes to:

• collect and assess information from scheme entities;
• calculate annual contribution amounts to be recovered through the scheme;
• determine and maintain a minimum prudent cash balance for the FERM Fund; and
• issue contribution determinations and contribution notices to transmission network service providers.

Submissions close 19 May 2026.

We are also still waiting for publication of the draft legislation to support the Market Making Obligation under the FERM following the consultation paper issued by the Department of Energy and Mining (SA) in January 2026.

AEMO – Quarterly Energy Dynamics Q1 2026

On 30 April 2026, AEMO published its Quarterly Energy Dynamics for Q1 2026. This report covers the period 1 January to 31 March 2026, tracking the changes in price and demand in the NEM, Wholesale Electricity Market (WEM) and east coast gas markets and their drivers.

The highlights for East coast electricity and gas:

• Operational demand remained steady, with distributed photovoltaic (PV) growth offsetting underlying demand growth. Underlying demand across National Electricity Market (NEM) regions averaged 25,496 megawatts (MW), a new quarterly record, up 302MW (+1.2%) from Q1 2025, reflecting higher cooling demand during January alongside ongoing electrification, population increase and data centre growth.
• Renewables supplied a higher share of NEM generation, reaching new Q1 highs. Grid-scale solar output reached a new quarterly high of 2,706 MW, up 13% from Q1 2025, while wind output reached a new Q1 high, increasing by 9.3% to average 3,845 MW. Total coal-fired generation fell to a new Q1 low at 13,102 MW, down 4.4% from Q1 2025. Gas-fired generation recorded its lowest average for any quarter since Q4 1999, at 712 MW, 24% lower than in Q1 2025.
• Expanded battery capacity reshaped supply patterns across the day. Battery discharge continued to rise significantly, averaging 359 MW this quarter, more than three times the Q1 2025 level. This new quarterly record was driven by the addition of 4,445 MW / 11,219 MWh of new large-scale battery capacity to the grid since the end of Q1 2025, more than doubling the total installed battery capacity in the NEM.
• Average NEM wholesale electricity prices decreased year-on-year, despite periods of high-priced volatility in South Australia. NEM-average wholesale spot prices averaged $73/megawatt hour (MWh), down $10/MWh (-12%) from Q1 2025, but up $23/MWh (+47%) compared to Q4 2025. Prices eased through the quarter, averaging $85/MWh in January, $69/MWh in February and $64/MWh in March as temperatures moderated and volatility decreased.
• East coast Q1 2026 gas prices were lower than Q1 2025, driven by lower demand and bidding behaviour. East coast wholesale gas prices averaged $10.61 per gigajoule (GJ) for the quarter, significantly lower than Q1 2025 which averaged $13.26/GJ (a record high) and lower than Q4 2025 which averaged $12.68/GJ.

In Western Australia, the underlying electricity demand in the WEM declined by 2.3% year-on-year, driven by milder weather conditions and reduced cooling demand, while distributed PV output rose by 6.5%, further reducing daytime grid-supplied demand. The share of renewable generation in the WEM increased from 40.8% in Q1 2025 to 46.1% this quarter, supported by higher wind output (+52 MW), increased distributed PV output (+38 MW), and a rise in biomass generation of 28 MW. Battery discharge increased by 108 MW (+305%), driven by a surge of new battery capacity (1,025 MW/4,100 MWh since the end of Q1 2025).

“Similar to the NEM, the growth in renewables and grid scale batteries – with more than 1,000 MW of battery capacity added in the past year – is changing the dynamics of Western Australia’s WEM” – Violette Mouchaileh, AEMO Executive General Manager, Policy & Corporate Affairs

The sum of all normalised costs in the WEM was $147.03/MWh in Q1, an increase of $2.10/MWh (+1%) from Q1 2025, driven by increases in Non-Co-Optimised Essential System Services (+$6.14/MWh) and Reserve Capacity (+$4.20/MWh) costs.

Western Australia’s domestic gas consumption was 97.4 petajoules (PJ), a decrease of 4.7 PJ (-4.6%) compared with Q1 2025, while production was 97.3 PJ, which represented a 4.1 PJ (-4.0%) decrease.

“While impacts from reduced access and higher costs for diesel are having an impact on market participants, consumers and the economy more broadly, Australia’s electricity and gas markets remain resilient, with strong gas storage levels heading into winter. AEMO continues to support industry and advise governments” – Violette Mouchaileh, AEMO Executive General Manager, Policy & Corporate Affairs

ESEM Update – Working Group members selected

On 6 May 2026, the members for the Industry-led Electricity Contract Co-Design Working Group were announced as part of the formation of the Electricity Services Entry Mechanism (ESEM). The ESEM was proposed in the National Electricity Market wholesale market settings review (the NEM Review), a detailed discussion of which is set out here.

The Working Group members are:

• Tom Arnold, ACEN Australia
• Ally Bonakdar, NAB
• Paul Curnow, Akaysha Energy
• Stephanie Easton, Iberdrola Australia
• Paul Grzinic, Aurora Energy
• Nick Hawke, Clean Energy Finance Corporation
• Declan Kelly, Flow Power
• Andrew Mulder, RWE
• Jialin Shen, Ampyr
• Daniel Teng, Origin Energy
• Andrew Wilkins, SA Water

The initial co-design process will develop contract structures for use in the first ESEM tender, anticipated to occur in late 2027 subject to ECMC approval.

ASL indicated that the process will run for up to 18 months from early May 2026, involving several in-person workshops and intersessional work including technical analysis and stakeholder consultation.

The Working Group for the initial contract co-design process will be supported by a Convening Group, comprised of representatives from the Commonwealth DCCEEW, ASL and in an observing capacity, the AER. Commonwealth DCCEEW has appointed L.E.K. Consulting as the independent facilitator of the Working Group, to support the design and delivery of the workshops and the broader co-design process. The Convening Group will oversee the Working Group's operations and provide administrative and resourcing support.

Wholesale Electricity Market

Western Power regulatory test application for Baldivis zone substation

On 15 April 2026, the Economic Regulation Authority (ERA) published its Determination that Western Power's proposed augmentation to build a new zone substation in Baldivis satisfies the regulatory test under Chapter 9 of the Electricity Networks Access Code 2004 (the Access Code). The regulatory test under section 9.14 of the Access Code determines whether a proposed augmentation to the electricity network is the best way of overcoming constraints in the wider electricity system.

The ERA published an issues paper on 20 March 2026, inviting public submissions. No submissions were received.

The test is satisfied if the ERA is satisfied that:

• the service provider's statement under section 9.11(b) of the Access Code is defensible; and
• the service provider has applied the regulatory test properly to each proposed major augmentation, using reasonable market development scenarios (incorporating varying levels of demand growth) and reasonable timings (testing alternative project commissioning dates and construction timetables).

Western Power's major augmentation was determined to be limited to the scope of the regulatory test.

The regulatory test is not a determination of whether the proposed costs for the project are efficient and can be passed on to customers and as such Western Power must still satisfy the ERA that its proposed costs for the project are efficient (as part of the next access arrangement review (AA6), due to be submitted in February 2027).

APA's Pilbara network ringfencing rules – invitation for submissions on amendments proposed by APA

APA has reviewed its ringfencing rules ahead of its next pricing period commencing July 2027, as required under the Pilbara Networks Access Code (the PNAC).

APA has identified changes necessary to strengthen governance, information protection and functional separation arrangements for its Port Hedland network and reflected these in the proposed amendments.

The PNAC establishes a light-handed access regime to facilitate third-party access to covered Pilbara networks. Network service providers that also generate or retail electricity must submit ringfencing rules to the ERA for approval. The ringfencing rules aim to ensure that owning both distribution and generation or retail assets does not reduce competition.

The ringfencing rules must address three core objectives:

• commercially sensitive information received by the network business must not be used outside of it or for purposes other than those for which it was acquired or developed;
• charges paid by network users must include only network costs; and
• the network business must not discriminate against competitors or in favour of its own (or its associates') generation or retail businesses.

On 22 April 2026, the ERA published a notice inviting stakeholder submissions on the proposed amendments to APA's Pilbara network ringfencing rules.

Submissions on the proposed amendments are due by 13 May 2026.

ATCO Gas Australia Pty Ltd Licence amendment application – Invitation for submissions

The ERA is seeking public comment on an application from ATCO Gas Australia Pty Ltd to amend its gas distribution licence GDL8.

On 19 January 2026, the State Government announced ATCO’s intention to decommission the Albany Gas Distribution system (Albany Network). The decommissioning of the network is expected to commence in the second half of 2026 and take approximately three years to complete.

In the interim, ATCO is seeking to obtain an exemption to the obligation to connect states broadly that, “a licensee must offer to connect residential premises located within the licence area to the distribution system if requested by a trader, subject to certain defined conditions” in clause 3.1 of schedule 1 (Obligation to Connect) of GDL8 to the Albany Network.

ATCO is seeking the amendment to GDL8 to exempt ATCO from the obligation only as it pertains to the Albany Network. The obligation would continue to apply to ATCO’s other gas distribution networks in the State.

The amendment of a licence is subject to the ERA being satisfied that it will not be contrary to the public interest to do so. When considering the amendment application, the ERA will consider the public interest matters set out in section 26 of the Economic Regulation Authority Act 2003 (WA).

Submissions on the amendment application are due by 14 May 2026.

Consultation on the Alternative Electricity Services Code of Practice for OPS is now open

Following the State Government’s decision to regulate embedded networks and on-site power supply (OPS) arrangements under the Alternative Electricity Services (AES) framework, Energy Policy WA (EPWA) is now consulting on the draft AES Code of Practice (draft AES Code).

The draft AES Code sets out the obligations for providers of prescribed services when interacting with their customers.

The accompanying reading guide provides an overview of the key differences between the draft AES Code of Practice and the 2024 draft OPSA Code.

AES registration for OPS providers will commence on 2 February 2027, with the ERA to conduct a three-month public interest test on all OPS provider registrations. It is intended that the AES Regulations (see proposed draft) and the AES Code of Practice will be updated as new services are added to the AES framework.

Submissions on the draft AES Code are due by 15 May 2026.

Consultation on the draft AES Code for single property network (SPN) services is expected in the second half of 2026, with AES registration for SPN providers being delayed to mid-2027.

Authors: Dan Brown, Partner; Kate Phillips, Partner; Dale Gill, Partner; Paul Newman, Consultant; Aylin Cunsolo, Partner; Lauren Zambotti, Counsel; Taylah Smith, Graduate; Elisabeth Gregory, Graduate; Jenna Matus, Paralegal.