Hydropower and pumped storage will play an essential reliability role in Australia’s future electricity system, according to the Draft 2026 Integrated System Plan (ISP) released by the Australian Energy Market Operator (AEMO). The draft road map confirms that while variable renewable generation will dominate the future supply mix, long-duration storage technologies – especially pumped storage – are required to manage extended periods of low wind and solar output.
AEMO’s optimal development path includes 12GW of pumped storage and continued reliance on the national electricity market’s existing hydropower fleet to 2050. These assets would operate alongside 32GW of grid-scale batteries, 120GW of new wind and solar, and new transmission links required to replace retiring coal capacity. The ISP forecasts that two-thirds of the remaining coal fleet will close by 2035, with full retirement by 2049.
Hydro Tasmania welcomed the draft plan, saying it confirms that long-duration storage is an essential component of the least-cost transition. CEO Rachel Watson said the ISP “confirmed that long-duration storage is essential, with hydro and pumped storage central to Australia’s grid reliability”.
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She said AEMO’s modelling reflects the challenge of prolonged renewable droughts. “The ISP had also identified that extended renewable lulls (when the wind isn’t blowing and the sun isn’t shining) are a reality and harder to predict in duration and intensity,” Watson said. “We are planning for this climate variability and modelling for various scenarios. Tasmania’s deep hydro storages are uniquely suited to help firm Australia’s grid through these lulls over days, weeks and seasons.”
Watson also welcomed AEMO’s identification of the Marinus Link interconnector and the North West Transmission Development as essential to unlocking Tasmania’s firming potential. “Project Marinus will allow Hydro Tasmania to strategically manage water levels in our dams. We can import surplus low-cost solar and wind from the mainland and export when it benefits Tasmania.”
Hydro Tasmania continues to invest in upgrades to its existing hydro assets and is progressing redevelopment options at Tarraleah and pumped storage at Lake Cethana. Watson said these developments would support Tasmanian demand, provide critical capacity to the mainland and deliver economic returns. “The future revenue potential for Hydro Tasmania is very strong. These projects will bring benefits to Tasmania through jobs, local investment, growing industries and greater revenue potential returned as dividends to support the Tasmanian community,” she said.
AEMO CEO Daniel Westerman said the ISP reflects extensive consultation and analysis. “Extensive stakeholder consultation and modelling of thousands of potential investment combinations has identified the least-cost option,” he said. “Renewable energy, firmed with storage, backed up by gas and connected with upgraded networks remains the least-cost road map to meet Australia’s energy needs. This aligns with consumer, industry and government investments already under way.”
AEMO cautioned that delays to generation, storage or transmission projects would reduce consumer benefits and may increase reliability risks. “While momentum in investment and delivery continues to build, challenges remain in delivering essential infrastructure at the pace required. Slower progress will erode benefits to consumers and present risks to reliability,” Westerman said.
Consultation on the draft ISP is open until February, with the final plan due in June 2026.
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