AEMO flags August supply shortfalls for VIC and SA as coal fleet ages
New MT PASA modelling points to tight reserve conditions in two NEM regions, exposing the market's growing reliance on batteries and rooftop solar.
The latest MT PASA modelling update published by the Australian Energy Market Operator on Tuesday (2026-08-04) flags forecast supply shortfalls in Victoria and South Australia, a warning that arrives as the operator prepares to release its 2026 Electricity Statement of Opportunities later this month.5
Shortfalls in the August run do not automatically translate into blackouts. The MT PASA screen is a medium-term planning tool that flags potential gaps between forecast demand and available generation, and the operator's own guidance has long stressed that the details matter more than the headline. But the fact that two regions appear on the list at all, ahead of the summer peak, tells traders something about how thin reserves have become outside the highest-renewable periods.5
The warning lands against a backdrop of rapid structural change in the NEM. Nearly 40% of the coal fleet has retired since market start, and the average age of remaining stations is 38 years, according to AEMO chief executive comments at Australian Energy Week in June (2026-06-11).4 Rooftop solar capacity now exceeds the capacity of the remaining coal plants, and at times meets more than 60% of all demand in the NEM.4 That shift has been a disinflationary force in wholesale prices for years, but it also concentrates risk in the shoulder periods when the sun drops out and the coal plants that remain are running hard.4
The price picture illustrates the tension. Wholesale spot prices across the NEM averaged $74/MWh in the June quarter, down $66/MWh, or 47%, from the same period in 2025.6 South Australia was the only region to experience any material price volatility, per the July 2026 market update from JDSupra.6 The collapse in average prices is the good news story of the transition. The shortfall flags are the counterweight.
Battery storage is doing much of the heavy lifting. Grid-scale batteries continue to shift energy across the day and increasingly influence price outcomes, while AEMO now reports 2.8 GW of behind-the-meter batteries that respond to price signals but are not centrally dispatched, roughly equivalent to the capacity of Eraring Power Station.2,6 That fleet is growing fast, but its contribution is weather-dependent in ways that dispatchable thermal generation never was.2
Gas is the swing fuel, and it is cheap. East coast wholesale gas prices averaged $9.08 per gigajoule in the June quarter, the lowest level since Q2 2021, driven by lower domestic demand.6 Wallumbilla gas traded at A$10.80/GJ as of Thursday (2026-08-27) close. [LIVE] The combination of low gas prices and a shrinking coal fleet means gas-fired generation can step in when renewables falter, but the fleet itself is not expanding fast enough to cover a sustained coal outage.1
The modelling does not assume storage behaviour; it decides charge and discharge based on the economics of each run, and scarcity prices emerge from demand-response and value-of-lost-load tiers when supply is tight.1 In the base case, the fleet grows to 50 GW of wind, 49 GW of solar, 45 GW of batteries and about 10 GW of gas.1 Under a high-cost-of-capital sensitivity, the model builds 62 GW of batteries and only 7 GW of gas, a mix that assumes capital costs stay elevated and gas becomes a rarer resource.1
The June quarter outcomes show how far the market has come since the 2022 crisis, when AEMO suspended the entire NEM and issued around 500 directions to over 5 GW of generation plant to keep the lights on.3,4 That suspension was an unprecedented step, taken after extraordinary efforts to manage a cold snap, generator outages and extreme prices.3,4 Nobody at the operator wants to repeat it.4
The ESOO release later this month will give the first full forward view of reserve margins for the coming summer.5 The MT PASA flag for VIC and SA suggests the operator is already nervous about the transition months, when solar output fades early and the remaining coal fleet is at its most fragile.5
For traders, the signal is not in the average price, which keeps falling. The signal is in the tail. South Australia's material volatility in an otherwise calm quarter shows what happens when the supply stack gets tight, and the August shortfall flags suggest those moments are becoming more frequent rather than less.6,5
The number to watch is the ESOO's forecast reserve margin for Victoria and South Australia, and how much of that margin depends on batteries charging before the evening peak rather than coal plants running through it.5