Australia’s Energy Transition Puts Essential System Services in Focus

Why It Matters

Ensuring reliable essential services is critical for a safe, affordable shift to an inverter‑dominant grid and prevents costly extensions of aging thermal plants. The reforms will shape investment incentives and consumer electricity costs across the NEM.

Key Takeaways

• Eraring coal plant delayed closure to 2029
• Inverter-based renewables lack inherent inertia
• AEMO calls for clearer ESS procurement rules
• Grid‑forming BESS can provide fast, bankable services

Pulse Analysis

Australia’s energy transition has entered a maturity stage where the traditional notion of reliability—simply having enough megawatts—no longer suffices. The rise of inverter‑based solar, wind and battery storage removes the by‑product inertia and fault‑current contributions that coal and gas plants historically supplied. AEMO’s 2025 Transition Plan flags three technical gaps—system strength, inertia and fault response—raising alarms that premature retirement of synchronous generators could destabilise the grid. The recent two‑year delay of the Eraring coal station underscores the urgency of addressing these gaps before large‑scale retirements proceed.

Policy makers are responding with targeted reforms aimed at embedding essential system services into the market framework. The Australian Energy Market Commission has received rule‑change requests from AEMO and a Clean Energy Council‑Australian Energy Council coalition, seeking clearer procurement guardrails and expanded technical specifications beyond inertia. Enhancements to the Network Support and Control Ancillary Services (NSCAS) regime aim to provide certainty for investors, streamline tender processes, and align contract tenors with the lifespan of emerging technologies. By codifying service requirements, regulators hope to unlock private capital for solutions that can reliably replace the ancillary benefits once delivered by thermal plants.

Among the emerging solutions, grid‑forming battery energy storage systems (BESS) stand out for their speed of deployment and multifunctional capability. Unlike traditional synchronous condensers, which require substantial capital and construction time, grid‑forming BESS can be installed rapidly and programmed to deliver voltage support, synthetic inertia and fault current on demand. This flexibility positions BESS as a cost‑effective bridge to a fully inverter‑based network, especially in Australia’s isolated NEM and Western Australia markets. As the country pilots these approaches, its experience will likely serve as a blueprint for other regions confronting similar decarbonisation challenges, reinforcing Australia’s role as a global testbed for next‑generation grid services.

Australia’s energy transition puts essential system services in focus

By Sam Markham, manager · policy and market growth, Fluence Australia · February 8, 2026

Australia’s energy transition is entering a more complex phase, where our path to delivering a decarbonised power system not only relies upon the volume of energy needed to meet demand, but also on the non‑energy essential system services needed to support a safe and secure power system.

Essential system services are the supporting elements that make sure energy is delivered to end‑users safely and securely. Recent developments, including delayed thermal power‑station closures and new regulatory‑reform proposals, highlight the critical role of essential system services in maintaining a secure, reliable electricity system as thermal generation like coal and gas retires.

Delayed closures reflect system‑readiness concerns

In December, the Australian Energy Market Operator (AEMO) published its 2025 Transition Plan for System Security (TPSS), which reinforced the need for governments to focus on both reliability (delivering enough megawatts of capacity) and essential system services (the stabilising characteristics needed to safely operate the power system).

AEMO’s TPSS identified multiple transition points over the coming decade where the system may not be sufficiently prepared to manage the withdrawal of synchronous generation without additional technical capabilities in place. It highlighted challenges around:

• System strength – the ability of the power system to maintain and control the voltage waveform at any given location.

• Inertia – a fast and automatic injection of energy to suppress rapid frequency deviations and slow the rate of change of frequency.

• Fault response – how generating systems and the network behave when a fault occurs.

Australia’s largest coal‑fired power station, Eraring, confirmed a further two‑year delay to its planned closure, extending operations until 2029. The announcement cites concerns about the ability to safely manage the power system in a high‑inverter‑based generation grid. Together, these developments indicate that Eraring’s delay is unlikely to be an isolated case and signals that existing frameworks need to be enhanced to deliver the technical requirements of a renewables‑led system.

What are essential system services and why they matter

Essential system services—including voltage‑waveform stability, fault current and inertia—are foundational to operating a safe and secure power system. Historically, reliability and security were provided as by‑products of traditional generation (coal, gas, hydro). As those assets age and retire, new sources of decarbonised electricity have different characteristics.

Australia’s power system is now dominated by utility‑scale solar, wind and battery energy storage systems (BESS) that are inverter‑based. These resources do not produce essential system services as a by‑product of energy, so AEMO’s management of the power system is changing as a result.

To meet renewable‑energy targets, governments must expand their focus to include the delivery of essential system services. Getting the right mix of investment to deliver enough capacity to meet demand and the essential system services to support the grid is crucial; otherwise governments risk paying thermal assets to delay their closures rather than investing in new solutions. Ignoring either reliability or essential system services will make the energy transition slower and more costly for consumers.

Policy reform critical to continue decarbonising the grid

Recent reforms have made progress toward addressing essential system services in the National Electricity Market (NEM), but more is needed. Improvements to the existing system‑strength, inertia and Network Support and Control Ancillary Services (NSCAS) frameworks are essential not only for decarbonisation but also for creating a durable, efficient market in the longer term.

Against this backdrop, AEMO and Australia’s peak energy‑industry bodies have stepped up with calls for reform. In the past three months the Australian Energy Market Commission (AEMC) has received two new rule‑change requests—one from AEMO and another from a collaborative initiative of the Clean Energy Council (CEC) and the Australian Energy Council (AEC).

The requests seek to:

• Enhance existing security frameworks with clearer guardrails for procuring non‑network ESS options (timeframes, tender or bilateral contract use, contract tenor).

• Introduce clearly defined technical specifications for services to increase regulatory certainty and transparency (currently only available for inertia).

These enhancements are critical to delivering the essential system services needed to give governments confidence to operate an entirely inverter‑based power system safely, securely and affordably.

Grid‑forming BESS offers fast‑to‑deploy essential system services

The leading technologies considered by Transmission Network Service Providers (TNSPs) to date are:

• Synchronous condensers – large rotating machines that provide system‑strength, voltage control and inertia.

• Non‑network options – such as grid‑forming BESS and other longer‑duration storage.

Relative to traditional network upgrades, non‑network options like grid‑forming BESS are fast to deploy and capable of delivering both energy and advanced services, making them well positioned to play a growing role in providing essential system services.

Introducing NEM‑wide technical specifications for the full range of essential system services should be based on broad industry engagement focused on power‑system outcomes. Clear, bankable procurement frameworks are needed to ensure that eligible non‑network options, like grid‑forming BESS, contribute to all grid needs in addition to energy. Such standards and processes would help deliver essential services at the lowest cost for consumers and give governments confidence to close thermal assets as soon as practicable.

Australia is world‑leading in facing this challenge

Australia’s isolated grids in the NEM and Western Australia’s Wholesale Electricity Market (WEM), together with high penetration of inverter‑based renewables and aging coal‑fired plants, make our grids some of the first to navigate this challenge at scale.

The NEM alone has a peak demand of over 34 GW, some of the highest reliability standards, is not interconnected with any other markets, and is one of the longest, stringiest grids in the world. This presents both a significant opportunity for inverter‑based generation and a complex challenge in managing the closure of thermal assets.

This phase of the energy transition, and the market reforms that accompany it, gives Australia an opportunity to learn from other grids and define a decarbonisation blueprint that other regions may follow. Industry and governments must work together to enhance policy frameworks quickly. Ultimately, defining and procuring essential system services will determine how rapidly thermal assets can retire and how quickly—and affordably—we can decarbonise the power system.

---

About the Author

Sam Markham is a policy and market‑growth manager at Fluence, focusing on emerging policy issues and market opportunities for energy storage within the Asia‑Pacific region. He has extensive experience in wholesale electricity market design, policy development and regulatory monitoring in government and regulator roles. In previous positions, Sam led a team of modelling and economic experts advising governments on reform opportunities to tackle key economic issues in the NEM, including future investment challenges, resilience to financial crises, and demand‑side participation in wholesale operations.