In a hotly debated policy shift, Australia’s Liberal Party abandoned a firm Net Zero emissions target while remaining in the Paris Agreement, signalling a pivot away from mandatory climate targets for the Opposition party and injecting fresh political uncertainty into long-term planning.

State governments are pushing ahead with ambitious renewable energy plans, yet questions remain about how quickly infrastructure can be built and how effectively new technologies can replace aging fossil fuel plants. At the same time, the Australian Energy Market Operator continues to flag localised reliability risks and the need for timely investment in renewable energy to avoid shortfalls as older plants retire.

Regardless of political machinations, Australia needs durable and bipartisan climate policy signals to ensure that major infrastructure investments and the effective integration and coordination of clean energy sources lead to ongoing household price stability in the long term.

Delivering affordable, predictable power for Australians

The rapid transformation of the power grid, driven by retiring coal plants and increasing renewable penetration has highlighted the need for stronger long-term stability. Reducing volatility requires a coordinated Australia-wide approach that expands conversion of renewable energy generation, strengthens transmission links between states and boosts grid-scale and community-level storage to smooth out supply gaps.

There are two desired elements: lowering prices for affordability and stabilising prices for reliability. Understanding the driving factors of both levels and variability of prices, as well as their interrelation, is critical for making policy and investment decisions. With the complexity and sophistication of the Australian electricity markets, the solution is equally complicated.

Our research findings provide insights that can inform future policy decisions to redesign electricity markets in ways that strengthen grid security, lower electricity prices and support Australia’s progress toward lower emissions. This includes redirecting small-scale renewable energy schemes toward solar-plus-battery systems, fostering rooftop export mechanisms, and supporting the digitalisation of the energy market.

Strategic policy framework for electricity price reliability

A diverse suite of policies is essential to support Australia’s transition toward a more reliable, affordable and lower emissions energy system, such as accelerating the rollout of solar-plus-battery systems, introducing dynamic and flexible rooftop export mechanisms, advancing two-sided market reform, and supporting the development of a diverse portfolio of renewable technologies.

Each policy lever plays a distinct role, whether stabilising prices, improving grid resilience, encouraging investment or protecting consumers during a period of change. Together, these measures form an integrated framework that addresses both immediate pressures and long-term structural challenges. From converting renewable supply and strengthening transmission networks and incentivising clean technology investment, the following policies outline pathways drawn from our studies, as Australia works to deliver a secure and modern electricity system.

Redirecting small-scale renewable energy schemes toward solar-plus-battery systems

The Federal Government’s small-scale renewable energy schemes (SRES) and complementary state programs have accelerated rooftop solar installations, particularly north-facing systems designed to maximise daytime generation and emissions reductions. However, the low uptake of battery storage limits the ability of rooftop solar to contribute to peak demand. Its volatility and its highly correlated midday output depress prices and increase price fluctuations. Policy adjustments are needed to better align rooftop energy generation with operational demand to reduce volatility. Redirecting SRES and state-based incentives toward solar-plus-battery systems would enable stored energy to be dispatched during peak periods, which will improve the reliability of renewable energy generation.

Some progress is underway. The SRES has now been expanded to include solar batteries. From July 2025, the Cheaper Home Batteries program offers eligible households and small businesses around a 30 per cent discount on the cost of installing a small-scale solar battery, with this discount being gradually decreased until 2030. As the solar feed-in tariff (FiT) are falling, households who have already installed solar are keen to enhance their solar systems with battery.

While the Cheaper Home Batteries program is a positive step, the current cost is too high for many households, which risks inequities similar to those experienced with rooftop solar uptake. Thus, additional programs could be subsidised to better coordinate solar exports (i.e., electricity sent into the grid), such as new models to share electricity in local communities (e.g. community batteries) and the use of Virtual Power Plants. These efforts will complement the strong uptake in big batteries, which is a critical support mechanism in Australia’s energy mix.

Dynamic and flexible rooftop export mechanisms

With growing rooftop installations (a growth of 13 per cent in 2024, reaching 12.4 per cent of total generation in Australia’s National Electricity Market [NEM]) and current storage capacity insufficient to absorb surplus generation, deliberate management of rooftop exports is becoming essential across the NEM.

A robust policy response would involve the implementation of dynamic/flexible export mechanisms, where a central system communicates with household systems to adjust export levels in real time according to network conditions. When combined with broader system upgrades – such as increased interconnection and complementary grid-support measures – dynamic export management has the potential to offer scalable and effective pathway to maintaining grid stability while accommodating continued decarbonisation.

In South Australia, for example, SA Power Networks is the first distribution operator in the world to implement flexible export limits at scale, with dynamic limits that respond to real-time network conditions. The Flexible Exports program has been running since 2023 in South Australia, but more states should explore the benefits of such systems.

Two-sided market reform

To ensure that renewable energy translates into lower electricity prices, the market requires affordable firming technologies alongside reforms that enhance demand-side participation. Advances in automation, digitalisation, and Internet of Things technology now make it possible for the demand side to engage effectively in dispatch and price-setting, marking a shift from the historically one-directional flow of electricity in the NEM toward a fully two-sided market. Such participation supports the adoption of dynamic retail pricing structures, including time-of-use tariffs like “solar sponge” rates, which encourage consumption during periods of abundant daytime solar generation and reduce reliance on expensive peaking resources.

Further rollouts in line with the AEMC’s priorities should involve rule changes, and cost-effective and efficient delivery of network infrastructure and services to enable better Costumer Energy Resources (CER) integration (new technology integration into the system and market). Such initiatives would bring the energy sector into closer alignment with digitisation initiatives in other industries such as the NSW Infrastructure Digitalisation and Data Policy.

Developing a diverse portfolio of renewable technologies

Achieving this requires not only strategic technology and site selection but also coordinated policy action to manage the operational challenges of integrating large volumes of variable renewable energy (VRE). The impact of increasing VRE on reducing prices during peak periods remains negligible, mostly due to high gas prices.

Governments across Australia, working in coordination with market operators, have a key role to play in this regard, including upgrading grid infrastructure to accommodate decentralised and fluctuating generation, improving forecasting methods to better predict VRE output, and investing in new firming technologies to support and complement the growing VRE capacity. These are critical to building a resilient energy market. Complementary technologies such as battery storage, interconnectors, and pumped hydro, which can respond rapidly to the intermittent nature of renewable generation supply, are increasingly important for maintaining the system’s stability and security. Cost reductions in battery technologies position them as a viable complement to variable renewable energy.

Building a resilient energy market grounded in renewable energy is essential for ensuring long-term stability, sustainability and economic security. A renewable-driven energy grid not only strengthens reliability but also enhances Australia’s energy independence. By diversifying supply through clean power sources and investing in long-duration storage, modernised grids, and supportive policy frameworks, Australia can accelerate its transition to Net Zero and lowers household’s power bills simultaneously.

Prioritising renewable energy is not just an environmental choice, it is a strategic foundation for a stronger, more adaptable, and future-ready energy market that can withstand uncertainty and thrive for decades to come.

Dr Mona Mashhadi Rajabi is a Research Fellow at the Centre for Climate Risk and Resilience in the UTS Business School.

Associate Professor Christina Sklibosios Nikitopoulos is in the Finance Department at the UTS Business School and a member of the Centre for Climate Risk and Resilience

Professor Martina Linnenluecke is Director at the Centre for Climate Risk and Resilience in the UTS Business School.

Image credit: Canva