Experts Recommend Overhaul of Australia's Electricity Market to Boost Clean Energy Investment

Experts urge Australia to adopt sweeping electricity market reforms to unlock long-term investment in clean energy and improve access to hedging tools, as grid volatility intensifies. The reforms aim to stimulate investment in renewable energy sources and improve the reliability of the grid. The changes are expected to have significant impacts on the energy sector, and the government is expected to consider the recommendations.

Australia's National Electricity Market (NEM) is facing significant challenges in stimulating long-term investment in renewable energy sources. In response, a panel of independent experts has recommended sweeping reforms to unlock investment in clean energy and improve access to hedging tools. The reforms aim to address grid volatility and ensure the reliability of the electricity supply.

The panel, in its draft report released on 6 August 2025, proposed a new framework for long-term derivative contracts to support investment in stable and dispatchable renewables and storage projects. This framework would address the persistent barriers to new investment, such as the mismatch between long-term financing needs of new energy projects and short-term contracting horizons of buyers [1].

The proposed Electricity Services Entry Mechanism (ESEM) would operate within the market's legal framework and focus support on the tail end of project life. It would recycle contracts to deepen liquidity, thereby providing greater revenue certainty to underpin 25–30-year infrastructure investments. This mechanism is intended to address the "tenor gap" that has been a key issue preventing investment in the NEM [1].

The draft report also recommended introducing an "always-on mandatory market making obligation." This would improve hedging tools via price transparency by requiring large energy players to continuously quote prices for key electricity derivatives. This measure is expected to enhance market stability and attract long-term investment [2].

The panel's recommendations come at a critical time for Australia's energy transition. The country is aiming to double renewable generation by 2030, and new projects and investment are stalling due to uncertainty over power market mechanisms and policy settings. The reforms are expected to provide a more stable and predictable environment for investors, thereby accelerating the transition to a low-emissions electricity system [2].

The NEM review panel also noted that the existing Capacity Investment Scheme (CIS) has helped address some risks faced by investors but warned that new projects are unlikely to proceed unless programs like the CIS are fully integrated into power markets. The CIS tenders will run every six months until 2026-27, but new settings will be needed to promote investment in renewable generation and storage capacity into the 2030s and beyond, especially as the Renewable Energy Target scheme comes to an end on 31 December 2030 [1].

The review is open for consultation, and responses are due by 17 September. The final recommendations report will be complete by the end of 2025, with the panel aiming to consult with governments in the first six months of 2026 to start enacting the recommended changes [1].

Enlight Renewable Energy (NASDAQ: ENLT), a leading renewable energy company, reported strong Q2 2025 results, highlighting the potential for growth in the renewable energy sector. The company's revenue surged 53% year-over-year to $135 million, with total capacity increasing 17% to 35.3 FGW since year-end 2024. The company raised its 2025 guidance, with revenue now expected between $520-535 million and Adjusted EBITDA between $385-400 million [3].

The proposed reforms, if implemented, could significantly impact the energy sector in Australia. They aim to create a more stable and predictable environment for investors, thereby accelerating the transition to a low-emissions electricity system and meeting the country's ambitious renewable energy targets.

References:

[1] https://www.argusmedia.com/en/news-and-insights/latest-market-news/2718123-australia-needs-permanent-renewable-power-scheme-panel
[2] https://www.bloomberg.com/news/articles/2025-08-06/australia-must-reform-market-for-clean-energy-investment-report
[3] https://www.stocktitan.net/news/ENLT/enlight-renewable-energy-reports-second-quarter-2025-financial-ky9ceiubuspk.html