Australian electricity and gas markets – February 2026 Update
19 February 2026
Highlights for December 2025 and January 2026
In this update, we look at the latest rule changes and market updates published in December 2025 and January 2026 which affect participants in the Australian electricity and gas markets.
What you need to know
- Stakeholders should note the market updates below, and note any impacts on their compliance obligations.
Key takeaways
There continues to be a lot of change and proposed reforms in the energy sector. December and January were no different. The key takeaways are:
- NEM Wholesale Market Settings Review – this report and its implementation was endorsed by the Energy and Climate Change Ministerial Council on 16 December 2025.
The report heralds a significant change from a system built around dispatchable generation to one built around services – bulk energy (renewables), shaping (peak shaving) and firming services (reliability). These services will be reflected in new, yet to be developed, contracts to be traded under the Market Making Obligation (MMO) and the Electricity Services Entry Mechanism (SESM). Throughout 2026, there will be important opportunities to participate in:
- consultation on the form of the legislation and guidelines to support the recommendations; and
- the co-design process of contracts to support the MMO and the ESEM – this is going to be a critical process in 2026. Noting that some of the contracts proposed in the report have already received criticism from industry, so we expect significant movement in this space.
- Firm Energy Reliability Mechanism Market Liquidity Obligation consultation paper for South Australia, which will be the first iteration of the "MMO" recommended in the NEM wholesale market settings review. It is drafted as an "always on" obligation and will commence on 1 July 2026 (although it will only apply to long duration facilities and certain other entities). It is a critical step in the implementation of the MMO and its development should be watched closely.
- Draft 2026 Integrated System Plan (ISP). The ISP is a critical document for participants to review to assess key directions in the electricity market and to guide their development pipeline. There have been important changes from earlier versions of the ISP. Most significantly it is predicting by 2050 the NEM would need:
- 120 gigawatts (GW) of grid-scale wind and solar
- 32 GW grid-scale batteries
- 14 GW of flexible gas
- 12 GW of pumped hydro
- 6,000km of new transmission lines added to the network
- NSW – Consultation on Hybrid Generation LTESA – this interestingly has suggested models that are based on contract models for the ESEM as proposed under the NEM wholesale market settings review. It will be critical for industry participants to follow the development of these contractual models.
National Electricity Rules
Rule Change Request – Supporting compliance with meter maintenance obligations
On 4 December 2025, the AEMC published a consultation paper relating to four rule change requests to improve compliance with meter maintenance obligations under the NER.
The rule change request explains that the current arrangements make it challenging for metering coordinators (MCs) to meet their testing and inspection requirements, as in some circumstances retailers and large customers do not provide the required support.
The different solutions the rule change requests propose are:
- Allowing retailers to disconnect a large customer's premises for non-compliant metering
- Including testing and inspection obligations as a requirement in commercial agreements
- Requiring retailers inform large customers that MCs are required to test and inspect metering installations
- Changing how unaccounted for Energy is allocated among retailers
Submissions closed on 15 January 2026.
Final Rule – Real-time data for consumers
On 18 December 2025, the AEMC published a final determination and final rules to enable all consumers and appointed representatives to access real-time data from the smart meter. All new smart meters installed from 30 November 2028 will have the capability to wirelessly communicate real-time data.
The rule change follows recommendations made by the AEMC in 2023 and responds to a rule change request from Energy Consumers Australia (ECA).
New Rule Versions Published – Integrating price-responsive resources into the NEM
On 29 January 2026, the AEMC published version 242 and 243 of the NER. These incorporate amendments made to the NER by the South Australian Minister:
- Version 242 incorporates Schedule 3 of the National Electricity Amendment (Integrating price-responsive resources into the NEM) Rule 2024 No. 24; and
- Version 243 incorporates the National Electricity Amendment (Retailer of Last Resort) Rule 2025
The final determination of the National Electricity Amendment Rule was made on 19 December 2024 as a key part of a package of reforms to integrate aggregated consumer energy resources (CER) within the National Electricity Market (NEM).
National Gas Rules
Final Rule – Gas Connection Charges
On 11 December 2025, the AEMC published a final determination requiring newly connecting retail gas customers to pay the cost-reflective charge upfront for their connection.
The final rule responds to a rule change request from ECA and addresses challenges created by declining gas demand projected by the Australian Energy Market Operator (AEMO). Under the old framework, these costs were often shared across all customers.
The final rule commences on 1 October 2026.
Rule Change Request – Gas cyber security roles and responsibilities for AEMO
On 29 January 2026, the AEMC published a consultation paper for a rule change request to formalise AEMO's cyber security roles and responsibilities under the National Gas Rules (NGR).
The rule change request seeks to replicate the four cyber security functions implemented for the National Electricity under Rule 2024 No. 23 to harmonise AEMO's role in cyber security across energy sectors.
These four functions would include:
- A cyber security incidents coordinator
- Supporting cyber preparedness and uplift
- Examining risks and providing advice to government and industry
- Facilitating the distribution of critical cyber security information
Submissions are open until 26 February 2026 and a draft determination is expected on 7 May 2026.
Other updates
AEMO – Transition Plan for System Security
On 1 December 2025, AEMO released its 2025 Transition Plan for System Security, an annual report focusing on maintaining power system security as the NEM transitions to a low- or zero-emissions power system.
Introduced as a new obligation under the NER, the plan provides a structured approach for the energy sector to navigate 'Transition Points' over at least the next 10 years. These key points are events that require material changes in the operational approach to managing system security, such as the closure of coal-fired power stations.
The plan identifies emerging security gaps, required investments, and collaborative actions.
Submissions closed on 16 February 2026.
AEMC – Residential Electricity Price Trends report
On 4 December 2025, the AEMC released its latest Residential Electricity Price Trends report.
AEMO – Draft 2026 Integrated System Plan (ISP)
On 10 December 2025, AEMO published the Draft 2026 Integrated System Plan (ISP) for stakeholder feedback in anticipation of finalising the plan by June 2026. The ISP outlines an optimal development path for the transition of the NEM power system to meet consumer needs and government policies through to 2050.
The Draft 2026 ISP aligns with consumer, industry and government investments by reaffirming that renewable energy, backed up by gas and connected with upgraded networks, remains the least-cost way to secure reliable electricity.
The Draft proposes that by 2050 the NEM would need:
- 120 gigawatts (GW) of grid-scale wind and solar
- 32 GW grid-scale batteries
- 14 GW of flexible gas
- 12 GW of pumped hydro
- 6,000km of new transmission lines added to the network
Submissions closed on 13 February 2026.
Final Determination – Review of the System Restart Standard
On 11 December 2025, the Reliability Panel published its final determination for the Review of the System Restart Standard. The final determination includes a revised standard and recommendations for future work to enhance system restart preparedness as the power system transitions.
AEMC – Pricing Review draft report
On 11 December 2025, the AEMC published a draft Pricing Review report proposing a comprehensive package of reforms to build an electricity pricing framework targeting fairness and lower costs.
The report's recommendations could be implemented over an approximately 10-year period beginning in 2026.
NEM Wholesale Market Setting Review
On 16 December 2025, the independent expert panel released the final report on the NEM wholesale market settings review.
The report provides 12 recommendations for improving and modernising the market to support a smooth transition to renewal energy as coal exits the system.
The core scope of the Review concerns short-term spot markets, medium-term derivative markets, and long-term investment markets. The review identifies efficient pricing, effective risk management and reliable supply as features of a well-functioning electricity market to be maintained.
At a glance, the main recommendations are that Energy Ministers should:
- Short-term: Require a broader range of price-responsive resources be visible or participate in dispatch so they can contribute effectively to market price formation
- Medium-term: Establish a process to allow industry to define core derivative contracts for bulk energy, shaping and firming services
- Long-term: Establish an Electricity Services Entry Mechanism (ESEM) within the National Electricity Law to facilitate investment in the NEM
Further information about the review is available on our update here.
Firm Energy Reliability Mechanism – Market Liquidity Obligation – First NEM Review reform
The Department for Energy and Mining (DEM) (SA) published on 15 January 2026 a consultation paper on the "Market Liquidity Obligation" under the Firm Energy Reliability Mechanism legislation. Responses were due on 17 February 2026.
Although titled as a consultation on the Market Liquidity Obligation (MLO), it is actually implementing the "Market Making Obligation" that was recommended in the NEM wholesale market settings review.
The MLO for South Australia will start on 1 July 2026.
Key elements of the consultation are:
- It is drafted as an "always on" obligation (which is different from what was initially proposed being it would apply in specified limited periods)
- The obligation will initially be limited to cap contracts
- It applies to existing designated electricity entities, any new assets that are a counterparty to a Firm Energy Reliability Mechanism Agreement or any Long Duration Firm Capacity (ie generators with greater than 30MW capacity that are able to dispatch at a rated output for eight hours (or more) of continuous output).
- The obligated entities will be required to post daily bid/offers for 3 MW or 2% of the corporate group’s South-Australian based firm capacity, whichever is the lower. The obligation is to offer not complete a trade.
- Min parcel size 1 MW
- Maximum 5% spread on bid / offer spread (and it will be a requirement that the obligated entity provide both an offer and bid price) – This may be relaxed to a greater spread
- Offered in the prompt (current) quarter plus 11 subsequent quarters (12 quarters/3 years total)
- Traded on an approved exchange or platform
- There is to be a 5 day exemption within any rolling 20 day period (to cater for outages and FM)
NSW – Consultation on Hybrid Generation LTESA
On 15 January 2026, AusEnergy Services Limited issued a consultation paper on a modified generation Long-Term Energy Service Agreement (LTESA) for solar-hybrid products (Hybrid Generation LTESA consultation). Submissions were due on 17 February 2026.
The 2 products suggested, include:
| Fixed shape-fixed volume product | Generation-following with price risk sharing |
|
Proponent bids against a fixed shape provided by ASL with the Scheme Financial Vehicle settling against the fixed shape and the project's fixed volume (as bid by the Proponent), subject to an annual payment cap which would be a bid variable submitted by the Proponent. This is very similar to the Time of Day block recommended in the NEM Wholesale Market Setting Review. |
Proponents bid swap terms similar to the existing Generation LTESA, however the product would settle against Net Exports, being the sum of exports minus imports based on a dispatched weighted average price (DWAP). Total payments will be subject to an annual payment cap, which would be a bid variable submitted by the Proponent. The payment mechanism would incorporate a price risk share mechanism to incentivise proponents to operate in a revenue maximising way. This has elements similar to the DWAP swap recommended in the NEM Wholesale Market Setting Review for the MMO, but without the complexity of that product. |
AEMC – Electricity Network Regulation Review announced
On 18 December 2025, the AEMC announced it will initiate a review to examine the future of the electricity network regulation in the NEM. The review will be initiated in 2026 and will consider the important role of electricity network regulation in providing consumers with a low cost, reliable supply of electricity as the NEM transitions to a net-zero system. In particular, it will consider how trends like the ongoing growth in consumer energy resources (CER) and battery energy storage systems are changing the types of services that network businesses need to provide consumers going forward.
The AEMC released the draft Terms of Reference, indicating a period of stakeholder engagement before the review is formally commenced in mid-2026.
AEMO – Quarterly Energy Dynamics Q4 2025
On 29 January 2026, AEMO released their Quarterly Energy Dynamics report for Q4 2025, covering market dynamics, trends and outcomes from 1 October to 31 December 2025.
Some developments include:
- Wholesale electricity prices fell across all NEM regions, averaging $50 per megawatt hour (MWh) across the NEM
- A $39.MWh (-44%) reduction from Q4 2024
- Coal-fired generation fell to an all-time quarterly low, down 4.6% year-on-year
- For the first time, renewables and storage supplied more than half of the system's energy needs for a full quarter
- Strong growth in renewable and storage output
- Wind generation up 29%
- Grid-scale solar up 15%
- Battery discharge nearly tripling
Authors: Dan Brown, Partner; Dale Gill, Partner; Paul Newman, Consultant; Aylin Cunsolo, Partner and Porscha Harper, Graduate.
