Higher rates and power bills are all part of the plan

There is no sugar-coating what is happening to electricity prices or what the Reserve Bank of Australia’s change in outlook on inflation means for households. The official interest rate has been kept on hold at 3.6 per cent, as was expected, but the RBA has adopted a more cautious outlook for what happens next. While more data is required, the RBA says inflationary pressures are building and it will do “what it considers necessary” to deliver on its mandate of price stability and full employment.

For households, this means further cuts to interest rates are less likely and a change in course to higher rates is possible. This will be on top of the additional costs that will come from the federal government’s decision to end its electricity bill subsidies, which had reduced outlays for households by $75 a quarter. Ending the subsidy is the right thing to do because it is simply not sustainable or prudent to shift the price signals of electricity cost pressures from users to consolidated revenue indefinitely.

The Albanese government must deal with the politics of its energy dilemma head-on. A starting point is to properly digest the figures set out in the Australian Energy Market Operator’s draft 2026 Integrated System Plan. On one level, the plan tells the Albanese government what it wants to hear. That is “renewable energy, firmed with storage, backed up by gas and connected by upgraded networks, presents the least-cost way to supply secure and reliable electricity to consumers, while meeting government policies”.

It is the last point that matters. As the draft plan makes clear, the ISP defines its long-term interest as including “price, quality, safety and reliability of electricity supply, and the achievement of emissions reduction targets”.

The ISP incorporates all relevant government policies and targets, including emissions, renewable energy, storage, offshore wind, hydrogen, consumer energy resources, electric vehicles, energy efficiency and household gas connections. National targets include an 82 per cent share of renewables in the national electricity market by 2030 and the economy-wide reduction of emissions to 62-70 per cent below 2005 levels by 2035.

AEMO has estimated the annualised total capital cost of the transition at $128bn. It will require grid-scale wind and solar capacity to increase from its current 23 gigawatts to 58GW by 2030, then double to 120GW by 2050. Dispatchable, grid-scale battery and pumped-hydro storage will need to increase from 7GW to 40GW. About 6000km of new transmission would be needed by 2050. Gas capacity will increase from 12GW to 14GW. And AEMO says coal will stay in the system for longer because of the Queensland government’s new policies.

AEMO acknowledges that delays are happening and if they continue they will involve additional cost. “The results underscore the need to progress the actionable transmission projects without delay,” it says. And it is just getting to grips with what a bigger rollout of solar and home battery systems actually means.

Electricity demand from business and industry is forecast to rise 90 per cent to 253 terawatt hours but household demand will fall 40 per cent to 20TWh. “However, this is a net amount over the year, and depends on the future grid being able to cater for much larger energy flows both to and from home-scale systems,” AEMO says.

The system plan relies on extensive and complex modelling. But there is precious little on the cost of any real alternative. There is not a single mention of nuclear, and the only figure on new coal is a hefty $11,700 a kilowatt, which includes carbon capture and storage. Nothing else meets AEMO’s mandate from the Albanese government’s gold-plated, renewables-heavy wish list.