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

Federal and state energy ministers (all except Queensland) have approved a consultation package for the Electricity Services Entry Mechanism (ESEM), a scheme to replace the struggling Capacity Investment Scheme. The package includes draft legislation, rules and a design paper. ESEM sets up a government-backed buyer of three standardised contract types: bulk energy (wind and solar), shaping (batteries) and firming (gas and other dispatchable plant). The scheme aims to extend contract tenor long enough for financing. The first tender is targeted for 2027. The design of each contract type has shifted from the Nelson Review's original proposals based on five co-design working group meetings. The firming contract details remain incomplete in the article.

Where this fits

ESEM is an attempt to solve a real problem: the NEM's existing market structures have not reliably funded firm dispatchable capacity at the scale needed. If the scheme works, it moves the dial on reliability by creating a mechanism to build and retain dispatchable plant. The risk is execution and cost. The scheme adds a government agency as a permanent market intermediary, warehousing contracts until the private market can absorb them. This adds layers of design complexity (reference fleet definitions, negative price handling, force majeure carve-outs) that will shape project economics and ultimately consumer bills.

What it means

The 2027 timeline is tight for a scheme requiring new legislation and jurisdictional alignment. Queensland's absence from the agreement signals fragmentation at a critical moment. Australia's grid resilience now depends on whether a novel contracting mechanism can deliver dispatchable capacity faster and cheaper than the CIS could. The real test is whether ESEM's cost and financing friction prove lower than the status quo, and whether standardised contracts can accommodate the regional and operational diversity of Australian firming assets.