Highwire act on power is running out of cost control

As the Albanese government ponders how high to lift what many consider to be its already unattainable climate change response targets, the cost for electricity users has just moved further out of reach. The Australian Energy Market Operator now says it will cost up to 55 per cent more – an extra $10bn – to build the 10,000km of transmission lines deemed necessary to keep the system working and the lights always on. Without grid upgrades, many of the major renewable energy projects that are supposed to replace retiring coal-fired power generation will not be able to access the grid. Failure to deliver on transmission lines also will increase the risk that a lack of wind or sunshine in one area will not be able to be covered by generation from somewhere else.

Ironically, the additional transmission lines are what the Coalition forces were trying to avoid with their nuclear ambition, something that was demonised by Labor as being prohibitively expensive. But with the election now over, the latest AEMO report provides a continuation of the familiar bad news that things will be costlier, less timely and generally more difficult than had been promised. The AEMO report did not contain a figure for what energy users will now be expected to pay for an upgrade that previously was tipped to cost $20bn. For a measure, Transgrid announced in March 2024 that the HumeLink project that is needed to connect the over-time and over-budget Snowy 2.0 pumped-hydro project had increased in cost from $3.27bn in 2021 to $4.88bn in 2024.

The latest AEMO estimates are contained in its draft 2025 electricity options report, which, in what is now a familiar pattern, was released late in business on Friday without public fanfare. The AEMO report will help form the basis of AEMO’s 2026 integrated system plan, regarded as the definitive blueprint for Australia’s electricity grid. AEMO said in addition to the increase of up to 55 per cent in real costs for overhead transmission line projects there was an increase of up to 35 per cent in real costs for transmission substations as well. Cost increases were driven by supply-chain pressures, market competition because of the high number of concurrent projects under development, project complexity, social licence requirements and additional contracting costs to account for risk allocation in engineering, procurement and construction. The report acknowledges that plans to expand the national grid’s high-voltage transmission network have sparked outrage among many rural communities, something Climate Change and Energy Minister Chris Bowen was keen to downplay after the election result.

Farmers now are being offered up to $250,000 a kilometre to host the pylons and wires. The experience of rising costs is consistent across the renewable energy transition and will cause AEMO to recalculate whether building the new lines still can be justified. The truth is there are no cheap options. The cost spiral exposes the folly of the Victorian government’s plans to build renewable energy zones covering 7 per cent of the state’s land area, with 5.2 million solar panels, nearly 1000 onshore wind turbines and four new transmission projects expected to provide 95 per cent of its electricity by 2035. It all adds to what should have been the obvious problem of not having a coherent plan for the much hoped for energy transition from the outset.

While it grapples with energy, the federal government also is being called on by climate evangelist Andrew Forrest to subsidise the transition of his Pilbara iron ore operations to produce green steel or face an existential threat to export income. Meanwhile, keen to be a global player, the federal government is being harangued to increase the nation’s emissions reduction target for 2035 to at least 75 per cent from the 2030 target of 43 per cent below 2005 levels. As always, the buck will inevitably stop with taxpayers.