Recently, the Australian energy market regulatory body has launched a consultation on two proposals for changes to competitive rules. These proposals will reshape the operation mechanism of the Australian National Electricity Market (NEM) during periods of excess power from solar power generation facilities, and the investment in battery energy storage systems is at the core of this policy debate.
On July 9th, the Australian Energy Market Commission (AEMC) released a consultation document, inviting stakeholders to submit feedback on the proposals put forward by the AEMC Reliability Expert Group and the Australian Clean Energy Council (CEC). The document aims to address the “Minimum System Load” (MSL) issue – that rooftop solar power generation offsets the base user demand, causing the grid demand to drop below the level required for safe system operation.
The emergence of the “Minimum System Load” (MSL) issue is due to the fact that grid operators must maintain a certain level of power demand to ensure the operation of synchronous generators and provide voltage support and system strength. However, rooftop solar power does not respond to wholesale price signals and, during periods of abundant sunlight, it sharply reduces the grid’s power demand, posing a severe challenge to system dispatch.
Currently, Australian energy market operators (AEMO) manage these situations through market notifications, dispatching instructions to battery energy storage system operators, and initiating emergency shutdown mechanisms in extreme cases. According to the worst-case scenario prediction in the “System Security Transformation Plan 2025” released by Australian energy market operators (AEMO), if key transition actions are postponed, by 2031, South Australia may experience up to 135 days per year exceeding the “Minimum System Load” (MSL) critical threshold.
The two rule change requests submitted to the Australian Energy Market Commission (AEMC) propose distinct solutions. The AEMC Reliability Expert Group advocates that when the Australian energy market operator (AEMO) declares an MSL event, the wholesale electricity spot price in the Australian National Electricity Market (NEM) should automatically be set at the market floor price (i.e., -1000 Australian dollars/MWh, approximately -693 US dollars/MWh), based on the logic of strengthening the price signal to prompt power generators to shut down and incentivize flexible loads and energy storage systems to increase electricity consumption, thereby reducing the reliance on manual intervention by the Australian energy market operator (AEMO).
The Australian Clean Energy Council (CEC) proposes to create a new paid market ancillary service, allowing battery energy storage systems, pumped hydroelectric power generation facilities, and other flexible loads to bid in a dedicated load reserve market, providing a transparent and contractable mechanism for the Australian energy market operator (AEMO) to secure demand response before the predicted “Minimum System Load” (MSL) period, operating mode similar to the existing frequency control ancillary service market.
The predicament of investment logic
For battery energy storage system operators, the implementation of the final rules has far-reaching impacts beyond operational inconvenience. The Australian energy market operator (AEMO) has repeatedly instructed AGL to operate the 250MW Torrens Island battery energy storage system to maintain synchronous operation and respond to dispatch targets from 2025 to 2026 to assist in managing the “Minimum System Load” (MSL), preventing it from operating in an economically optimal manner and unable to charge at the lowest electricity price window. The power outage incident in November 2025 alone caused the Torrens Island battery energy storage system to lose thousands of dollars in arbitrage profits. Moreover, the compensation mechanism designed for traditional power generators is almost unable to adapt to the economic characteristics of the energy storage system.
In its submission, the Australian Clean Energy Council (CEC) directly characterized this predicament as an investment risk. The agency believes that the current practice of relying on the temporary instructions of the Australian Energy Market Operator (AEMO) and short-term transitional contracts (valid only until December 2029) is weakening the commercial feasibility of new battery energy storage projects, while precisely at this time, the Australian National Electricity Market (NEM) most needs these investments. The Australian Energy Market Commission (AEMC) advocates for a transparent pricing and clearly defined market mechanism that will reduce the capital cost of energy storage projects and attract a wider range of suppliers to participate in the procurement process, which often favors existing enterprises.
The Australian Energy Market Commission (AEMC) has also identified a series of supplementary or alternative mechanisms to provide load reserves, including extending the transitional contracts, modifying the existing wholesale demand response mechanism to support the increase in bidirectional load response, and reconfiguring the existing frequency control ancillary service market.
A broader reform agenda
This consultation is part of the intensive reform agenda of the Australian National Electricity Market (NEM). The wholesale market review proposal of the Australian National Electricity Market (NEM) chaired by Tim Nelson suggests providing better support for energy storage through a clearer system service market framework and proposes establishing a new “electricity service access mechanism” to support long-term investment in dispatchable resources. The reliability and safety analysis of the Australian Energy Market Commission (AEMC) predicts that there will be power shortages in South Australia starting from the fiscal year 2026-2027 and in New South Wales starting from the fiscal year 2027-2028, which further increases the pressure on the regulatory authorities to make the right choices in the design of the energy storage market.
The Australian Energy Market Operator (AEMO) pointed out in the “2026 Integrated System Plan” that by 2050, to achieve the minimum cost path required for the retirement of coal-fired power plants, 35GW of short-term and medium-term battery energy storage systems and 5GW of long-term energy storage systems need to be deployed. At the same time, the Australian Energy Market Commission (AEMC) is advancing a broader framework for user-side energy resource reforms, including the “Solar Sharing Program” launched on July 1, 2026, which provides three hours of free electricity to household users during the midday peak period to shift the load to the low peak period of solar power generation. The Australian Energy Market Operator (AEMO) is also developing a market visibility framework to improve the integration of price-responsive distributed resources and centralized dispatch. These measures are expected to affect the frequency and severity of MSL occurrences, but the specific impact extent is still uncertain.
The Australian Energy Market Commission (AEMC) plans to issue draft rulings on two rule change requests by December 3, 2026.