On 26 June 2025, the AEMC published its Draft Determination. The Commission’s draft determination is not to make a rule and therefore not to implement operational procurement of inertia at this time, due to the fact that there would not be material net benefits under current assumptions. Instead, the Commission proposes targeted improvements to the existing framework to enhance procurement efficiency, transparency and stakeholder confidence. These benefits can be delivered without changes to the National Electricity Rules.

Stakeholders are invited to provide submissions by 7 August 2025.

The Commission considers that operational procurement of inertia has merit in principle; however, there are unlikely to be material net benefits in the near term under current assumptions  

The Draft Determination sets out the Commission's draft decision not to implement operational procurement of inertia, including through a spot market, at this time.

While operational procurement may deliver benefits under different future system conditions, the Commission has concluded that under current system conditions, there are not material net benefits.
Deferring implementation also allows recent reforms under the Improving Security Frameworks (ISF) rule change to be embedded and assessed, supporting system learning and maintaining regulatory stability during a period of transition.

To support future readiness for operational procurement if it becomes beneficial, the Commission intends to ask the Reliability Panel to monitor and report annually on five key system conditions through the NEM Reliability and Security review (formerly known as the annual market performance review). Any future decision to revisit operational procurement will remain a matter for the Commission.

Although no rule is proposed in this determination, the Draft Determination sets out opportunities to improve the application of the current frameworks without changes to the rules. These include encouraging AEMO to include a dedicated section on inertia in its Transition Plan for System Security and encouraging the AER and TNSPs to improve the application and communication of how inertia procurement decisions are assessed and justified.

Overview of the rule change process

On 2 March 2023, the Australian Energy Market Commission (AEMC) initiated a rule change request from the Australian Energy Council (AEC) proposing an ancillary service spot market for inertia in the national electricity market (NEM) to ensure a secure and efficient operation of the power system through the energy transition.

On 2 March 2023, the AEMC published a consultation paper to seek stakeholder feedback.
Following the consultation, the Commission prioritised finalising the Improving Security Frameworks (ISF) rule change to streamline the inertia procurement framework in the planning timeframe. The ISF reforms, now being implemented, introduced several targeted improvements to the inertia framework. 

On 12 December 2024, the Commission published a Directions Paper to seek stakeholder feedback on an economic assessment of operational procurement of inertia. Submissions to the Directions Paper informed the Commission’s Draft Determination.

Given the complexities associated with the proposed operational procurement of inertia, including understanding power system needs and technological capabilities, the Commission had previously extended the timeframe for a draft determination to 27 June 2025.

Further, the reasoning for not making a rule within a year of the rule change initiation was published on 15 February 2024 in accordance with section 108A of the National Electricity Law. The s108A report is available below.

On 27 June 2025, the Commission published its Draft Determination as detailed above.