Australia’s electricity sector is facing a growing risk of renewable energy curtailment. What can be done to keep the energy transition on track?
The Australian Energy Market Operator (AEMO) has warned that, by 2027, major solar farms in southeast Australia may be forced to curtail more than one third of their power generation due to delays in building transmission infrastructure.1 These delays risk undermining both the social licence and commercial viability of renewable projects – cutting output, reducing revenue certainty, deterring new investment, and ultimately slowing Australia’s energy transition.
What is the issue?
The Australian electricity sector is facing a growing risk of renewable energy curtailment – where generators are forced to reduce or stope electricity output due to transmission, technical, or storage constraints. According to AEMO, some major solar projects in Victoria and South Australia could experience 35-65% curtailment, with delays to the VNI West project (now expected to 2030) further increasing the risk of lost generation.2
High levels of curtailment not only limit available energy usage, raise consumer costs and increase the risk of blackouts, but also highlight a misalignment between renewable generation growth and transmission development. This undermines investor confidence and weakens the social licence for Australia’s energy transition.
What is curtailment?
Curtailment refers to the reduction or cessation of electricity generation, and it can generally be classified as either economic or non-economic.
- Economic curtailment occurs when generators limit output due to market conditions. For example, when prices are negative or when dispatching additional power would not deliver a viable return. In these cases, a generator may still choose to produce, even if it is uneconomic.
- Non-economic curtailment arises from physical or operational limits on the grid, such as congestion, insufficient transmission capacity, or reliability concern, which prevent energy from being dispatched regardless of market signals. In these circumstances, the generator is required to reduce or cease output.
Economic curtailment is generally easier to anticipate and can be more readily addressed in contractual arrangements. Non-economic curtailment, however, is harder to predict and poses greater risk, particularly as new generation projects are often approved on the assumption that planned transmission investments will be delivered on time.
Key issues include:
Risk allocation
As curtailment rates rise, allocating financial responsibility for reduced dispatch due to grid congestion becomes critical. Traditional PPAs often do not adequately address these risks, particularly given curtailment levels now vary significantly between states. In response, parties are turning to hybrid or firmed projects with battery storage (BESS) and exploring risk-sharing arrangements. However, effective allocation of curtailment risk remains central to project bankability long-term success.
Force majeure and transmission delays
PPAs are increasingly being negotiated to account for curtailment, particularly through force majeure provisions. Extended transmission delays or failures may trigger such provisions, providing temporary relief from obligations, revised delivery schedules, or financial liability adjustments. Parties should carefully consider whether curtailment qualifies as an unforeseen and unavoidable circumstance when drafting these clauses.
Regulatory and policy gaps
While Federal and State budgets have committed significant funds to renewable generation, investment in poles and wires, and Renewable Energy Zones (REZs) is lagging.3 This misalignment between generation approvals and transmission readiness exposes investors to uncertainty and jeopardies Australia’s transition target of 82% renewables by 2030.4
What can be done from a legal perspective?
Legally, curtailment is managed through contractual mechanisms, such as PPAs, which set out the parties’ obligations and the consequences of both permitted and unpermitted curtailment events. More specifically, it may be addressed dedicated provisions, sometimes referred to as electricity shortfall clauses, or within a force majeure clause, depending on whether curtailment is defined as an included or excluded event. These mechanisms provide clarity on how both economic and non-economic curtailment are treated and how risks are allocated between the parties. There is no ‘standard curtailment’ clause so provisions must be tailored on a case-by-case basis to capture the financial implications of prolonged curtailment.
The growing risk of high curtailment rates is also reshaping renewable project structures. Developers are increasingly adopting battery storage as part of generation projects to offset curtailment. By co-locating storage at the point of generation, a project can store energy that would otherwise be curtailed due to grid congestion or unfavourable market conditions and then dispatch it later when process is higher or the grid can accommodate more supply. Hamilton Locke is seeing this model being used more frequently, for example in, Energy Vault’s ACEN New England solar and BESS project.
What can be done from a policy perspective?
Addressing curtailment requires proactive and coordinated action at Federal and State levels. In NSW, the Electricity Infrastructure Roadmap aims to coordinate a transmission, generation, storage, and firming resources to replace coal-fired power stations, underpinned by more than $32 billion in private investment by 2030.5 However, a broader multi-jurisdictional approach is essential to ensure renewable energy growth is matched by adequate transmission infrastructure and supportive market mechanisms.
At a minimum, policymakers must align generation approvals with transmission planning. Delays in projects such as VNI West highlight the risks of generation capacity outpacing the grid’s ability to transport electricity.6 Prioritising investment in poles, wires, and REZs will help reduce congestion, minimise non-economic curtailment, and provide certainty to investors. Governments may also consider accelerated permitting, funding incentives, or public-private partnerships to close gaps in transmission and storage capacity.
Beyond infrastructure, policy design can directly address curtailment through market design and incentives. Options include refining dispatch rules, introducing pricing signals that reflect congestion costs, and supporting hybrid projects that combine generation and storage. Capacity markets or targeted financial incentives may also help balance supply and demand in regions at risk of high curtailment, helping projects remain commercially viable.
Ultimately, a clear, consistent, and long-term policy framework is critical to giving developers, investors, and financiers the confidence to commit capital while reducing curtailment risk, and ensuring Australia remains on track broader transition to achieve its target of 82% renewable electricity by 2030.
Looking forward
Curtailment is becoming a critical challenge in Australia’s energy transition, with the potential to erode project viability, weaken investor confidence, and jeopardise emissions reduction targets. Tackling this issue requires a dual approach:
- At the project level: robust contractual drafting to fairly allocate and manage curtailment risk.
- At the policy level: coordinated measures to ensure transmission, storage, and market frameworks keep pace with renewable generation growth, at the state and national levels.
By addressing the risks of excessive curtailment, and responding to the issues identified by AEMO, Australia can strengthen investor confidence and position itself as a global leader in renewable integration and grid modernisation.
The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Veno Panicker or Matt Baumgurtel.
1AEMO, 2025 Enhanced Locational Information Report (Report, July 2025) 3.5.
2Ibid 5.3.
3Chris Bowen, ‘Albanese Government delivers record renewable investment and declining emissions’ (Media Release, 287 February 2025).
4Tristan Edis, ‘Bridging the Gap to 82% Renewable Electricity Generation by 2030’ (Report, Clean Energy Council, August 2023).
5NSW Government, ‘Electricity Infrastructure Roadmap’, NSW Climate and Energy Action (Roadmap, November 2020) <https://www.energy.nsw.gov.au/nsw-plans-and-progress/major-state-projects/electricity-infrastructure-roadmap>.
6Giles Parkinson, ‘Key transmission link delayed by two years in new blow to wind and solar projects’ (Article, 1 July 2025) <https://reneweconomy.com.au/key-transmission-link-delayed-by-two-years-in-new-blow-to-wind-and-solar-projects/>.
