Australia’s electricity grid faces an ongoing technical challenge as it transitions from a system dominated by synchronous coal-fired generation to one heavily reliant on inverter-based renewable energy. The Australian Energy Market Operator (AEMO) highlighted this critical issue in its final 2026 General Power System Risk Review (GPSRR) report, released on July 31, 2026.

The report indicates that while grid-forming Battery Energy Storage Systems (BESS) are identified as a potential alternative to traditional synchronous machines, they have not yet been confirmed to meet the highest tier of system strength requirements within the National Electricity Market (NEM). This finding comes as AEMO launches a fault current trial to further assess these capabilities, underscoring the urgency of ensuring grid stability as coal plants exit the system.

The Evolving Challenge of System Strength

System strength refers to the grid’s ability to maintain stable voltage and frequency following a fault or disturbance. Historically, this stability has been provided by large, synchronous generators like coal and gas power stations, which inherently contribute ‘inertia’ and ‘fault current’ to the network. As these generators progressively retire, the NEM increasingly relies on inverter-based resources (IBR) such as wind, solar, and batteries. While IBRs are vital for decarbonisation, they do not naturally provide the same system strength characteristics.

AEMO’s 2026 GPSRR, an annual requirement under rule 5.20A of the National Electricity Rules, provides a forward-looking view of low-probability but high-impact risks to the grid. The latest report assessed four priority risks, including non-credible system-strength risks arising from synchronous-machine retirements.

“The GPSRR’s findings indicate that the battery storage fleet is reshaping NEM operations faster than any other single technology. Australia’s grid-scale battery fleet passed 9,000MW in Q2 2026, with NEM-wide battery price spreads collapsing 85% year-on-year to an average of AU$51/MWh as the installed fleet scaled rapidly.”

Despite the rapid deployment of grid-scale batteries, which exceeded 9 GW in Q2 2026, the report clarifies that their grid-forming capabilities, while promising, are still under evaluation for the most stringent system strength needs. The report notes that the timely delivery of synchronous condensers (devices specifically designed to provide system strength) and transmission augmentations remains the primary means of maintaining fault levels. However, grid-forming BESS are explicitly named as an alternative or supplementary solution under active consideration.

The Role of Grid-Forming Batteries

Grid-forming inverters allow batteries to actively establish and maintain grid voltage and frequency, acting more like traditional synchronous generators. AEMO previously designated grid-forming BESS as a priority action for 2026, anticipating them to form the “operational heartbeat of the New South Wales power system” as synchronous generation retires. The GPSRR now adds a formal risk assessment layer to this designation, outlining the conditions for their expanded role from efficient to minimum system strength levels.

The transition to a highly renewable grid necessitates sophisticated control technologies. The ability of batteries to provide essential system services, including frequency control and system strength, is paramount. However, the exact technical specifications and operational performance required for these systems to fully replicate the capabilities of retiring thermal plants are still being refined and tested. This ongoing assessment is crucial for ensuring the NEM’s reliability and resilience. Homeowners considering battery storage can explore options for grid integration, which might eventually include advanced grid-forming capabilities to support local network stability. Best Solar Panel & Home Battery Financing Options in Australia 2026: Loans, PPAs & Green Mortgages Explained

Broader Grid Challenges and Solutions

The 2026 GPSRR also addressed other significant risks, including increasing large-load connections from data centres. These facilities represent a rapidly growing source of electricity demand and, as inverter-based loads, also contribute to the complexity of maintaining system strength.

To manage these evolving risks, AEMO’s strategy includes a multi-pronged approach:

  • Transmission Augmentations: Investing in new transmission infrastructure is critical to deliver power from Renewable Energy Zones (REZs) and strengthen inter-regional connections. Projects like the recently approved Hunter Transmission Project in NSW are vital for this.
  • Synchronous Condensers: Deployment of these dedicated devices to provide system strength in key areas.
  • Market Mechanisms: Developing market frameworks that appropriately value and remunerate system strength services from all types of generators.
  • Fault Current Trials: Direct testing and validation of IBR capabilities, such as the current trial for grid-forming BESS, to inform future operational rules and investment decisions.

The findings of the GPSRR underscore that while Australia is making significant progress in integrating renewables and storage, the technical intricacies of maintaining a stable grid require continuous assessment and proactive solutions. For Australian households and businesses, understanding these foundational grid challenges is key to appreciating the complex interplay between new energy technologies and reliable power delivery. Exploring options for energy independence and backup solutions can also provide peace of mind in an evolving grid landscape. Your 2026 Guide: Best Home Energy Backup Solutions for Australian Blackouts, Starting from $7,000

The shift away from traditional generation sources demands not just more renewable capacity, but also innovative solutions that can provide the essential system services historically offered by coal and gas. AEMO’s ongoing work, including the GPSRR and related trials, is fundamental to navigating this transition securely and cost-effectively for all Australians.