The Australian Energy Market Commission (AEMC) has released a draft determination proposing not to make a rule to introduce an inertia trading market. The Commission found the costs of implementing and running the market would outweigh the likely benefits, while existing frameworks can deliver adequate outcomes for now.
The draft determination responds to the Australian Energy Council's request for a real-time market to trade inertia - the grid stability service that prevents blackouts when big generators trip. The Commission's analysis found implementation would deliver minimal benefits under current conditions.
AEMC Chair Anna Collyer said the decision reflects a proportionate approach that avoids premature change while maintaining flexibility for the future.
"We're not missing out on consumer benefits by waiting. Our analysis shows foreseeable inertia needs are likely to be met through synchronous condensers being installed for system strength, which provide inertia as a co-benefit at low marginal cost,” Ms Collyer said.
"This is about getting the timing right. Technical enablers like real-time inertia measurement need further development, and recent security framework reforms will enable innovation and learning before we layer on additional changes.”
The economics don't stack up
The AEMC’s draft analysis, which considered various modelling scenarios, found that under current conditions, expected benefits would be modest compared to the implementation costs of $5-10 million upfront plus millions more in annual operating expenses.
"Based on our draft assessment, implementing a complex new market for such modest benefits would not be in consumers' interests right now," Ms Collyer said.
The AEMC expects that recently reformed frameworks should deliver adequate inertia as they are rolled out. While system strength solutions are still being procured, they are expected to contribute inertia once operational. These frameworks need time to be implemented before further changes are considered.
Building blocks for the future
The draft determination proposes several steps to prepare for potential future implementation:
- The Reliability Panel would monitor system indicators to identify when conditions may warrant implementing an inertia market
- AEMO would enhance transparency of its technical work through its Transition Plan for System Security
- Networks would improve communication about procurement decisions
- Innovation trials would continue testing new applications of emerging technologies, such as synthetic inertia from batteries
What is inertia and why does it matter?
Inertia acts like the power system's shock absorber, it cushions sudden changes that could cause blackouts. Traditional coal and gas generators naturally provide inertia through their spinning turbines, but as these retire and are replaced by solar, wind and batteries, the grid needs new sources of this essential stability service.
Next steps
Stakeholders have until 7 August 2025 to provide feedback on the draft determination. The Commission expects to make its final determination later this year.
For more information, please visit the project page for Efficient provision of inertia
Media: Jessica Rich, 0459 918 964, media@aemc.gov.au