Finding Australia’s path to reliable clean energy

The NEM is Australia’s main electricity system and wholesale market, covering the eastern and southern states and supplying around 80% of the country’s electricity. It is currently heading towards a system of solar power, wind power, batteries, pumped hydro and additional transmission infrastructure to lower emissions. 

New analysis from CommBank highlighting the mounting challenge of delivering a system that is low-emission, affordable and reliable. Underlying electricity consumption in the NEM is forecast to grow at a compound annual rate of 2.6% over the next five years and 3.2% over the next decade — a notable lift from the 1.0% growth rate seen over the past 10 years.¹ This acceleration reflects the combined impact of electrification, electric vehicle adoption and new large-scale energy users such as data centres.

Vivek Dhar, Head of Commodities and Sustainability Research at CommBank, describes this balancing act as the “energy trilemma”,² noting that Australia’s east-coast electricity market is now feeling the strain of shifting from coal to renewables. He says reliability and affordability have deteriorated even as emissions have fallen, a trend he argues “underscores the complexity of energy transition and the need to navigate [the trilemma] carefully”.

The structure of the economy is also critical. Dhar notes that manufacturing “plays a significant role in determining the appropriate pace of this energy transition”, particularly because some of the industries most exposed to abrupt change are among the largest employers on the east coast. Prolonged high electricity prices, he warns, could dent competitiveness at a time when global peers are moving faster on decarbonisation. “If Australia’s major trading partners embrace faster green transitions,” he says, “Australia risks being left behind and may face higher barriers to its exports.”

Despite wholesale electricity prices currently sitting near or below long-run averages, Dhar expects downward pressure to be limited in the years ahead. The cost of new renewable projects and the returns required by investors will set an effective floor, even as more solar, wind, batteries and pumped hydro enter the system.

Overall, he sees the transition accelerating but far from straightforward, with policy, investment and industry impacts tightly intertwined.

“The sector must now find a way to overcome the challenge of the ‘energy trilemma’ — balancing the three competing goals of affordability, reliability and decarbonisation. Our trilemma index for the east coast electricity market shows that reliability and affordability have worsened.”

“The sector must now find a way to overcome the challenge of the ‘energy trilemma’ — balancing the three competing goals of affordability, reliability and decarbonisation.”
— Vivek Dhar, Head of Commodities and Sustainability Research, CommBank

Ranking reveals mixed progress

Australia’s position in the World Energy Council’s global Energy Trilemma rankings adds further pressure for accelerated reform, according to Dhar. The index places Australia 28th out of 126 countries, a result Dhar says reflects the “challenge of delivering an energy system where emissions are lower, reliability and security are adequate and prices are affordable”.

He notes that the concept of the trilemma is not new, but the latest data highlights how difficult the balance has become. “It is hard to reconcile the World Energy Council’s assessment of energy security, energy equity and environmental sustainability with the last 23 years in Australia,” Dhar says, pointing to the volatility in household electricity costs and the uneven progress on system reliability.

Dhar’s team constructed an alternative Trilemma Index for the east coast electricity market to capture conditions more accurately for Australian consumers. The updated index shows that from 2019 to 2024 emissions intensity fell by around 18 per cent, but this improvement coincided with a sharp rise in residential electricity prices and a surge in reliability alerts. “Our index is unlikely to change the underlying message,” he says. “Reliability and affordability have worsened and emissions intensity has decreased.”

It also showed that emissions intensity in the NEM has declined over the past decade, but not always for the right reasons. Industry feedback suggests the fall has been driven more by reduced energy use than by significant growth in renewable generation.

International comparisons sharpen the challenge

One of the complexities, Dhar argues, is that recent improvements in environmental sustainability are often driven by temporary or cyclical factors rather than long-term structural shifts. For example, he notes that the decline in output from ageing coal assets has made the fleet less predictable, which in turn has weighed on reliability. At the same time, stronger renewable output in some periods has contributed to lower emissions intensity, though these gains can be offset by weak performance at other times. “The renewable power and energy storage that have replaced retired coal plants have not improved reliability,” he says.

The report also points to international developments shaping domestic conditions. While not central to the trilemma metrics, global market volatility in recent years has reinforced affordability pressures and created new uncertainties for the system. Dhar cautions that Australia’s exposure to international movements will continue to complicate the pathway to a stable transition.

Data centre disruption

Large industrial loads are forecast to record a solid 4-5% annual increase, accounting for the largest share of new electricity demand between 2025-26 and 2029-30.³ Meanwhile, as coal leaves the grid, Australia is losing a key source of steady power just as electricity demand rises — including from fast-growing sectors such as data centres.

“A report commissioned by the AEMO⁴ predicts that over the next five years, 25-30% of electricity consumption will come directly from data centres — although we believe that could be on the low side,” says Dhar.

Data centres are playing an increasingly vital role in supporting Australia’s digital economy, but high and continuous energy demands highlight a need for developing reliable low-emission power sources to meet future demand.

Governments are expected to play a bigger role in shaping how the east coast energy market works. The Nelson Review, for example, which is examining how the NEM is structured, released a draft report in August 2025.⁵ Tim Nelson, Chair, NEM Review and Associate Professor said that the draft report makes nine major recommendations aimed at re-establishing the NEM’s core strengths: efficient markets to guide investment decisions, efficient dispatch, managing financial risk, and delivering the affordable and reliable energy consumers deserve and expect.

As the mix of renewables and storage evolves for Australia, managing the balance between affordability, reliability and sustainability will remain critical. The next few years will define how successfully the NEM adapts and how the nation powers its low-emissions future.

“Over the next five years, 25-30% of electricity consumption will come directly from data centres — although we believe that could be on the low side”
— Vivek Dhar, Head of Commodities and Sustainability Research, CommBank

What next?

Looking ahead, Dhar argues that the next phase of the transition must focus on lifting structural resilience and reducing exposure to temporary shocks. This includes accelerating transmission development, strengthening system services and ensuring that renewable and storage investment can keep pace with demand. He stresses that the trade-offs will remain significant, but that progress is possible if affordability, reliability and emissions are treated as integrated priorities.

“Even if imperfections remain, the message of our index is consistent,” Dhar says. “Australia needs an energy system that balances all three pillars of the trilemma, not just one.” The path to that balance, he adds, will define the country’s economic competitiveness and industrial strength well into the next decade.