Energy ministers greenlight ESEM consultation package, with maiden tender targeted for 2027

Federal and state energy ministers (all except Queensland) agreed to release a consultation package on the Electricity Services Entry Mechanism (ESEM), the replacement scheme for the Capacity Investment Scheme recommended by the Nelson Review. The ESEM proposes a government-backed buyer that would contract for standardised services across three categories: bulk energy (solar, wind), shaping (batteries), and firming (gas). The package includes draft legislation, rules, and a consultation paper, with a maiden tender targeted for 2027. The working group co-designing the contracts has already revised the bulk energy contract design from the Nelson Review's recommendation, shifting risk away from sellers onto a regional reference fleet index, and is still defining terms for negative pricing, force majeure, and the reference fleet itself.

Where this fits

The ESEM is a symptom of the core cost problem: the spot market and existing contract market have not delivered the long tenor needed to finance projects at the scale and speed the transition requires. This exposes the whole-system cost that renewables-only policy carries. Instead of accepting firm, long-lived, capital-light firming capacity (nuclear), the scheme requires government to warehouse and then offload standardised contracts for gas peaking plants. The design still rests on gas for firming; it simply layers on contract intermediation and government counterparty risk.

What it means

A government-backed buyer warehousing contracts is a public subsidy dressed as market design. Australia is building a grid that cannot stand alone without fossil gas and government insurance on the contracts that buy it. The real constraint, the absence of firm, low-emission generation that does not depend on weather or gas, remains unaddressed by law.