Future clean energy investments stalled by outdated national electricity market

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Melbourne-headquartered Clean Energy Investor Group (CEIG) in collaboration with Sydney-based Castalia Advisors research finds the national electricity market’s (NEMs) outdated design – built for an era of coal and gas – is hindering investment in modern large-scale energy projects like wind, solar, and batteries.

CEIG says now is a time when the nation needs market settings to attract and coordinate the $122 billion (USD 75.9 billion) investment necessary to transition to a renewable energy future.

The Future Market Design Discussion Paper shows that continued blunt market settings risk making Australia uncompetitive and driving domestic and international investors to other countries.

“Australia is caught in a vicious cycle of negotiating extensions for ageing and unreliable coal plants, which delays the investments required to replace retiring coal generation, the research found.

Other key findings include noting government initiatives like the Capacity Investment Scheme and Renewable Energy Zones are doing their best to patch the NEM, their fragmented approach fails to address problems with the market’s fundamental design.

It says if actual investment remains below the Integrated System Plan’s (ISP) projected requirements by 6–9%, it will create a significant gap in renewable capacity—12–18 GW by 2040 and 15–23 GW by 2050—highlighting the urgent need for stronger investment signals within the NEM.

The discussion paper encourages the federal government’s independent review of the NEM’s wholesale market settings to be “ambitious.”

CEIG Chief Executive Officer Richie Merzian said as the United States (US) turns away from renewables, Australia has an incredible opportunity to attract investment to its domestic energy market, if its market settings are right.

“Investors need clear, effective, and predictable signals to drive the investment needed to replace the ageing, unreliable coal fleet,” Merzian said.

“The national electricity market was designed in an era of flip-phones and Nokia. A rethink is essential to attract sufficient investment, lower the cost of capital for renewables, and build Australia’s modern clean energy grid.”

Merzian said the government’s independent review of the NEM is a key step toward creating a grid that supports firmed renewable energy and CEIG looks forward to working with the Panel.”

Castalia Advisors Executive Director Alex Sundakov said the report finds that the market’s inability to incentivise and enable financing of sufficient coordinated investment is the single greatest barrier to achieving reliable and affordable as well as near-zero emissions grid.

“This is not primarily a technical challenge—it is a market design challenge that requires thoughtful reform to unlock Australia’s renewable energy potential,” Sundakov said.

“A cohesive rethink of the NEM is critical to delivering the scale of investment required to meet Australia’s clean energy targets.”

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