Australia’s energy market rule-maker has decided against introducing a real-time market for inertia, citing insufficient near-term benefits and high implementation costs.
In a draft determination released 26 June, the Australian Energy Market Commission (AEMC) rejected a proposal by the Australian Energy Council (AEC) to operationally procure inertia – a grid stability service critical for system security.
“Inertia plays a critical role in maintaining power system security by limiting the rate of change of frequency following a contingency event,” the AEMC stated.
However, its analysis found that foreseeable minimum inertia needs are likely to be met by synchronous condensers and other technologies already being delivered to meet system strength requirements.
“We’re not missing out on consumer benefits by waiting,” said AEMC Chair Anna Collyer.
“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.”
The proposed market mechanism would have involved bidding and dispatch of inertia as a standalone ancillary service.
However, modelling found that benefits under current conditions would be modest and heavily dependent on optimistic assumptions. Implementation would have required $5 million to $10 million upfront and ongoing annual costs, with minimal return.
“Implementing a complex new market for such modest benefits would not be in consumers’ interests right now,” Collyer said.
Instead of progressing with the proposed rule change, the Commission has detailed a range of targeted improvements designed to strengthen procurement transparency and boost technical readiness for potential future reform.
AEMO is expected to expand its development of real-time inertia measurement and reporting through its Transition Plan for System Security.
Transmission network service providers will be expected to better explain how procurement decisions are assessed and justified under the existing regulatory framework.
The Commission also supports AEMO’s continued use of Type 2 contracts to trial the application of grid-forming inverters and other emerging technologies in real-world settings.
Stakeholder feedback also helped shape the determination.
While several submissions supported operational procurement as a means to unlock investment in synthetic inertia from batteries and other inverter-based resources, others – most notably AEMO and Energy Networks Australia – argued that the focus should remain on consolidating recent security framework reforms before introducing additional complexity.
To prepare for possible future change, the AEMC will task the Reliability Panel with monitoring key system indicators that could trigger renewed consideration of an inertia market.
These include changes in regional inertia requirements, increases in procurement costs or frequency control ancillary services prices, and the emergence of new system constraints linked to the rate of change of frequency.
Submissions on the draft determination are open until 7 August 2025. The Commission expects to publish its final decision in September.