Australia’s creaking power grid is thwarting renewables and pushing up prices

Major delays to the expansion of Australia’s outdated east-coast power grid are limiting its capacity to connect more renewable energy and threatening to increase prices by hundreds of dollars a year in some parts of the country.

The lack of high-voltage power lines to connect far-flung renewable generators and batteries to major cities has emerged as a roadblock to the energy transition and is heightening concerns in the industry as the next wave of coal and gas plant closures nears.

New high-voltage transmission lines are needed to expand the grid to carry more renewables and achieve the Albanese government’s target for 82 per cent of Australia’s power being green by 2030.Credit: Luis Ascui

However, key projects to modernise the grid, such as building new transmission links to enhance the flow of energy between states, are running into delays that are now averaging three years, according to analysis from energy consultancy Nexa Advisory.

Unless the delays are addressed, experts say, the consequences could be severe: energy reliability will come under pressure as the economy’s growing demand for electricity outpaces supply, while wholesale prices will become more volatile – tumbling during the day when it’s sunny before spiking in the evenings when solar recedes and the grid must call on expensive gas-fired generation to plug gaps.

There are also fears the delays could prolong the lives of power stations that burn fossil fuels, imperilling state and federal climate targets.

Nexa Advisory principal Stephanie Bashir, a former executive at electricity and gas giant AGL, said higher wholesale costs caused by transmission delays would flow through to bills, with the impact to be felt most acutely in NSW where consumers potentially face up to $1100 in added costs over three years if delays continue.

The three-year impost could be nearly $230 for Victorian consumers and nearly $250 in South Australia, Nexa’s modelling found. Queenslanders would be most insulated, with added costs of $40, as the state is less reliant on imported power, it said.

Delaying transmission upgrades would defer the capital costs that flow through to the “network charges” component of consumers’ power bills, Nexa said, but increases in the wholesale price component would “significantly outweigh” any savings.

“Nationally significant projects cannot languish in the purgatory of planning and regulatory processes that are not fit for purpose,” Bashir said. “We have to forge a way forward urgently, focused on accountability, coordination, and rigour.”

For Australia to reach net zero by 2050, the energy market operator calculates the grid needs 10,000 kilometres of extra transmission lines.

But the expansion is far behind where it needs to be, as transmission projects run into rising construction costs, shortages of skills and equipment, and strong opposition from rural and regional communities worried about impacts on farming practices, property values and the environment.

Of the nine key committed transmission projects, only one – an upgrade to the Victorian-NSW interconnector known as VNI Minor – has been completed since 2020.

Delays to one of the biggest, the 900-kilometre EnergyConnect link between SA, NSW and Victoria, have triggered official warnings of “reliability gaps” emerging sooner than originally forecast, and has raised speculation in the industry that AGL’s Torrens Island B gas plant may be required to delay its closure beyond 2026.

“The next wave of those thermal assets looking at retirement is AGL’s Torrens plant, which has already had a negotiated extension to 2026,” UBS analyst Tom Allen said. “We see some potential for that plant operating longer.”

There are also doubts about the planned retirement of other generators, such the ageing Yallourn coal plant in Victoria, which the state government is subsidising to operate until 2028, but may now be needed for longer. The NSW government in May struck a deal with Origin to delay the closure of Eraring by at least two years.

“I think it’s all going to be on the table,” said Matt Rennie, co-chief executive of Rennie Advisory. “When we genuinely have the option of continuing very low-cost supply, it’s going to be something the government is going to find very hard to look past, and that makes meeting decarbonisation commitments quite difficult.”

On top of the need to replace retiring coal, Rennie said the need for new transmission to connect renewables had become even more critical, amid forecasts that power demand would triple as more homes and factories switched from gas to electricity and plugged in electric cars.

Transmission delays restricting the renewable rollout were unlikely to raise the threat of blackouts, Rennie said, but it would lift the need for “phenomenally expensive” gas-fired generation at peak times.

“There is not a case that the lights won’t be on, but there is a case that electricity prices can’t be forecast in terms of where they can go,” he said.

Bashir said addressing the transmission delays to avoid adverse consequences for consumers would require co-ordination and accountability, including setting firm delivery deadlines in state and federal agreements, identifying and funding the cost of delays, and working with affected communities to improve social licence.

AGL said it was still planning to close Torrens Island B in June 2026 and turn the site into an industrial energy hub. Torrens Island also houses AGL’s 210-megawatt Barker Inlet fast-response gas “peaking” plant, and the 250-megawatt Torrens battery.

Both are operational and “providing flexible generation and firming capacity for the SA electricity market”, AGL said. “We continue to engage with all stakeholders including the Australian Energy Market Operator and the SA government regarding the transition at Torrens,” a spokesperson said.

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