Capability Class 2 Technologies Review

The Coordinator of Energy (Coordinator) has completed a review, under clause 4.13B of the Electricity System and Market (ESM) Rules, of several provisions related to energy and availability limited resources. Under clause 4.13B.2 of the ESM Rules, the first review must be completed by 1 October 2026.

Section 4.13B of the ESM Rules outlines the requirements for this review. These requirements were originally introduced to the ESM Rules on 1 November 2021. On 15 January 2025, additional requirements for this review were introduced to implement the outcomes of the Reserve Capacity Mechanism (RCM) Review.

The Coordinator considered that it was appropriate to undertake a review of the provisions that have been in operation for five years at the completion of the review aligning with the intent of the relevant ESM Rules. Consequently, the Coordinator only reviewed items implemented before or for the 2021 Reserve Capacity Cycle.

The significant growth of Electric Storage Resource (ESR) capacity may require appropriate solutions to mitigate Power System Security and Reliability (PSSR) issues, and was also included in the scope of this review.

The scope of this Capability Class 2 Technologies (CC2T) Review included:

Whether market design changes are required to maintain PSSR with the growing share of ESR in the SWIS;

Whether the methodology for rating the capacity of ESR for the purposes of setting Certified Reserve Capacity remains consistent with the State Electricity Objective (SEO);

Whether the DSP Obligation Duration remains consistent with the SEO; and

Whether the ESR obligation intervals (ESROI), including the effectiveness of the method used by AEMO to determine the ESROI, is consistent with the SEO.

This Review was conducted in consultation with the Market Advisory Committee and the Capability Class 2 Technologies Review Working Group (CC2TRWG).

Capability Class 2 Technologies Review Consultation Paper 

On 4 August 2026, the Department of Energy and Economic Diversification published a Consultation Paper that presented the analysis undertaken in the Capability Class 2 Technologies Review and proposals to improve the operation of Capability Class 2 Technologies in the Wholesale Electricity Market (WEM), including the Reserve Capacity Mechanism (RCM).

The Consultation Paper outlined the rationale for:

retaining the Linearly Derating Method for Electric Storage Resources (ESRs) in the RCM;
retaining the current approach for determining Electric Storage Resource Obligation Intervals (ESROIs); and
not introducing subclasses for tie-breaking purposes within Capability Class 2 for Network Access Quantity Prioritisation.

The Consultation Paper presented seven main proposals to amend the Electricity System and Market (ESM) Rules to:

Measure the total energy delivered for assessing ESR performance in a Reserve Capacity Test.
Change the Demand Side Programme (DSP) availability obligation to 8:00am to 12:00pm and 2:00pm to 10:00pm on Business days. An alternative morning window of 4:00am to 8:00am was also suggested instead of the 8:00am to 12:00pm option.
Allow a DSP Participant to choose only the 2:00pm to 10:00pm window and receive a Reserve Capacity Price derated by 8/12.
Allow a DSP Participant, with respect to a single Associated Load of ≥ 5MW, to have its Capacity Credits reduced and a corresponding portion of its Reserve Capacity Security returned, provided certain conditions are met.
Empower AEMO to include a Lack of Reserve – State of Charge (LOR-SOC) condition in the Low Reserve Condition Framework. This will allow AEMO to set a minimum state of charge level for the ESR fleet when AEMO determines that ESR discharge will be required during the ESROIs to prevent the risk of unserved energy.
Ensure ESR operators can comply with the LOR-SOC obligation and their other obligations through either constraint equations or market submission changes.
Introduce an addition to the current refund mechanism for ESRs when an LOR-SOC is in effect.

Stakeholder feedback was specifically requested on a preferred option for proposals 2 and 6.

The window for submitting feedback on the Consultation Paper closed 5:00pm (AWST) on 1 September 2026. Stakeholder submissions received are available below.

Capability Class 2 Technologies Review Information Paper

Following consideration of stakeholder submissions on the Consultation Paper, the Department of Energy and Economic Diversification published the Coordinator’s Information Paper on the Outcomes of the Capability Class 2 Technologies Review on 30 September 2026. This paper also includes a summary of the consultation submissions and DEED’s responses.

The Review Outcomes set out in the Information Paper include:

allowing AEMO to accurately measure ESR performance in a Reserve Capacity Test;
changes to DSP availability obligation intervals to 8:00am to 12:00pm and 2:00pm to 10:00pm on Business days;
allowances for reduction in DSP Capacity Credits, if large associated loads cease operations; and
specific ESR state of charge obligations during Lack of Reserve events, and additional Capacity Credit Refund provisions during periods when these specific obligations apply.

Following the Information Paper, the Department of Energy and Economic Diversification will develop draft ESM Amending Rules for consultation.