Key takeaway: Near-term capacity comes from the project pipeline; beyond 2029, a Capacity Expansion Model chooses the mix and timing of new generation and storage by minimising total system cost, subject to reliability constraints.
Capacity modelling for the NEM is based on current capacities (from NEM Generation Information), policy assumptions, and Modo Energy’s analysis. Capacity buildout to 2029 is relatively well-defined, with many assets already in the pipeline. For battery storage, Modo Energy’s house view on battery pipeline data is used — see Storage.
The Capacity Expansion Model
Beyond 2029, long-term generation and storage investment decisions are determined by a Capacity Expansion Model (CEM). The CEM minimises total system cost — the sum of operational costs, investment costs (capex), and fixed operating costs (opex) — subject to reliability constraints, producing a coherent capacity pathway from 2030 to 2054. Investment assumptions are sourced from the AEMO 2026 ISP Step Change scenario.
The CEM only builds new capacity when the value it adds to the system exceeds its full cost. Each technology’s investment cost is converted into an equivalent annual cost using its Weighted Average Cost of Capital (WACC), taken from AEMO’s 2026 ISP Upper bound scenario — so a higher WACC sets a higher bar for investment. The cost of financing a project through its construction period is also included, based on each technology’s build time.
| Technology | WACC |
|---|---|
| Solar PV | 8.0% |
| Onshore Wind | 8.5% |
| Offshore Wind | 8.5% |
| CCGT | 12.0% |
| OCGT | 10.0% |
| BESS (all durations) | 9.5% |
Investment technologies include Solar PV, Onshore Wind, Offshore Wind, CCGT, OCGT, and Battery Storage (2h, 4h, and 8h durations). Reliability constraints ensure sufficient firm capacity is maintained as the thermal fleet retires, and annual build limits are applied per technology. Technologies such as Offshore Wind, Pumped Hydro, and Reservoir Hydro are treated as policy-led and follow a fixed path informed by external scenarios.
Technology costs
Capex assumptions for CEM investment technologies — Solar PV, Onshore Wind, Offshore Wind, CCGT, and OCGT — are sourced from AEMO’s 2026 Forecasting Assumptions Update (FAU), which adopts CSIRO’s GenCost 2025-26 report, rebased to real-2024 Australian dollars.
Battery energy storage capex is set independently, using Modo Energy’s own market intelligence rather than GenCost. See Storage for detail. How technology costs vary across the Central, High, and Low scenarios is covered in Scenario Modelling.
Government policy assumptions
Government policies such as the Victorian Renewable Energy Target (VRET), the Capacity Investment Scheme (CIS), Long-Term Energy Service Agreements (LTESA), and SA capacity and firming targets are accounted for in the near-term capacity buildout, which is based on the battery pipeline. The model is not specifically fixed to meet these targets, with the exception of Victorian offshore wind policy targets, which are partially met with 2,000 MW built by 2035. Other buildout is economical via capacity expansion.