AEMC Rejects Proposal for Inertia Trading Market Amid Cost Concerns

An Exacting Analysis on the Inertia Trading Market Proposal

The Australian Energy Market Commission (AEMC) recently unveiled its draft determination whereby the proposition to create an inertia trading market has been declined. This comes as a response to the Australian Energy Council’s request for a real-time market dedicated to trading inertia—a key component in maintaining grid stability and preventing power outages when large generators disconnect unexpectedly.

Understanding Inertia in Power Systems

Inertia serves as the critical shock absorber for Australia’s power system. It mitigates sudden changes that could otherwise result in blackouts. Historically, this crucial stabilising service was naturally supplied by traditional coal and gas generators through their spinning turbines. However, with the shift towards renewable energy sources like solar and wind, new solutions are required to uphold this essential service.

The Economic Analysis and Decision

The AEMC, under Chair Anna Collyer, concluded that “the costs of implementing and running the market would outweigh the likely benefits” at this juncture. The proposed inertia market’s anticipated implementation costs were projected to be $5–10 million upfront, coupled with additional annual operating expenses running into the millions, which the Commission observed would deliver minimal benefits under current conditions.

The existing frameworks were considered adequate for meeting foreseeable inertia requirements through measures like the installation of synchronous condensers, which concurrently provide system strength and inertia at a low marginal cost.

Next Steps and Emerging Innovations

To prepare for potential future inertia market implementations, the AEMC draft determination proposes various preparatory steps:

• The Reliability Panel will monitor system indicators to identify optimal conditions for introducing an inertia market.
• The Australian Energy Market Operator (AEMO) will enhance the transparency of its technical efforts via its Transition Plan for System Security.
• Networks will bolster communication about procurement decisions, and innovation trials will continue testing new technologies, like synthetic inertia from batteries.

The Bigger Picture for Australian Businesses

For Australian businesses, particularly small to medium enterprises (SMEs) and the commercial and industrial (C&I) sectors, understanding the dynamics of grid stability can offer insights into how energy cost fluctuations might impact operations. With a focus on innovation and efficiency, businesses can seize potential cost-saving opportunities even as the energy landscape evolves.

Learn more about Energy Managers and how opportunities can be harnessed with support from Watt Utilities.

Timeframe for Feedback and Final Determination

Stakeholders are invited to provide feedback on the draft determination up until 7 August 2025. The final determination from the AEMC is expected to follow later this year. For further details, please visit the AEMC project page.