Issue 254, June 2026
The end of another financial year looms and it has been a messy one for our energy sectors even by recent standards. For the natural gas sector in particular politics remains a major factor and the Australian Energy Producers association has taken advantage of its annual conference in May to remind politicians that this is “a sliding door moment” in understanding the risks of policies being dropped on explorers, suppliers and retailers in three-year cycles. AEP adds that this is "a critical time for Australia’s energy sector amid heightened geopolitical uncertainty, growing global energy demand for oil and gas and rapid technological change reshaping energy systems around the world”. June will see the Australian Energy Council association take up similar cudgels for the electricity sector at its annual conference on a theme that the industry is enmeshed in understanding and navigating "one of the most complex transitions in its history.” And the Centre for Independent Studies has emphasized in recent days that the local debate is taking place amid broader global tensions over balancing climate ambition with economic realities. "The debate,” it says, "raises questions over whether short-term pressures are undermining long-term decarbonisation strategies.”
"Just when we needed a clear way forward on energy policy, Australians have been left with a half-hearted and a half-developed combination of responses to one of the greatest challenges facing our energy transition, and by extension, our future economy”— Tony Wood, Grattan Institute.
"Populist sentiment is now driving energy policy from every direction. Most Australians correctly sense that something has gone badly wrong in how our energy resources are governed. Blessed with some of the world’s best endowments of coal, gas, uranium, solar and wind, we nevertheless endure high prices and shortages. These flow directly into higher living costs and fewer jobs” — Saul Kavonic, MST Marquee.
“Electricity supply is barely keeping up with retiring coal plants, which were becoming less reliable and struggling with rising demand because of the electrification of industry and growth in data centres” — Kerry Schott, former chair of the Energy Security Board, speaking at the Energy Users Association conference.
"Australia’s clean power shift is approaching a critical juncture” — Jackie Trad, chief executive, Clean Energy Council.
"Critical government programs are in place and private capital is ready, but regulatory challenges, a lack of bipartisan support and delays to critical infrastructure are holding back billions of dollars being invested in regional communities across the country” — Trad.
"The Albanese government’s scheme to supercharge renewables investment has struggled to deliver and the level of green energy generation reaching financial closure has plunged to a decade low, increasing pressure on Labor to hit its end-of-decade target” — Perry Williams, chief business correspondent, The Australian newspaper.
"Investment in renewable projects collapsed by 50 per cent over the past year, wiping out $4 billion in spending on the rollout, compromising the Albanese government’s clean energy targets and spurring industry warnings that the delays could raise electricity bills” — Mike Foley and Nick Toscano, writing in Sydney Morning Herald.
"In a complex and evolving policy environment, it is very easy for industry and stakeholders to focus on the short-term, at the expense of being clear on where we want to get to and what good looks like” — David Feeney, Australian Energy Council.
“Environmental scheme costs are a material component of an energy bill and there are options for governments to simplify these schemes and ensure they deliver the greatest benefits to consumers” — Louise Kinnear, CEO, Australian Energy Council.
"Many young Australians want sensible environmental stewardship but what they do not support is becoming poorer in the name of elite political theatre” — media commentator Louise Roberts for Sky News.
Australia’s rapidly expanding data centre sector is adding complexity to the country’s energy transition as rising electricity demand from cloud and AI workloads intensifies pressure on power systems. The national electricity market is increasingly balancing the demand from large, fast-growing digital infrastructure loads with the need to maintain affordability, reliability and decarbonisation objectives, Fitch Ratings says.
Rising demand from large-load users such as data centres is likely to increase competition for grid access, renewable energy supply and capital at a time when Australia is already managing the complex shift towards a lower-carbon electricity system, Fitch says in a statement.
“This could create both opportunities and risks for the power sector,” the agency adds.
“Stronger demand from data centres may support investment in new renewable generation, storage, transmission and distribution infrastructure. Long-term power purchase agreements could improve revenue visibility for renewable and battery projects, supporting financing and accelerating deployment. However, the credit benefits for utilities will depend on whether regulatory frameworks allow efficient and timely recovery of the costs required to accommodate large new loads. If cost recovery is delayed or unclear, higher capital expenditure could weigh on leverage and cash flow.”
Meanwhile, environmental activists Greenpeace Australia Pacific are warning that data centres powering the artificial intelligence boom could demand more new electricity over the next 15 years than Australia's cars or homes. The organisation claims that "sudden and unprecedented AI growth threatens the country's transition to renewable energy”.
In a report it says uses government projections Greenpeace claims data centres could account for 13 per cent of total national electricity demand in 2040 — "putting data centre demand at the same level or greater than the energy needed for electrification of cars, homes and potentially businesses.”
Greenpeace adds that this "presents a risk that the large energy demands of data centres will arrive faster than renewable energy, storage and transmission can be built.”
Meanwhile electricity consumption by data centres is forecast to grow at an average annual rate of 25 per cent by the end of the decade according to the Australian Energy Market Operator.
The Australian Financial Review reports that forecast power demand from data centres has “increased exponentially” over the past two years and is leading to warnings that it could push up power prices for households unless it is matched by "new and entirely additional" electricity supply.
Federal and State energy ministers are due in July to consider a report from their advisers on the issues posed by the boom.
Transmission costs remain “the missing piece” of Australia’s so-called clean energy transition, according to the Grattan Institute’s Tony Wood.
In a new commentary published in late May, Wood, energy and climate change senior fellow at the Melbourne-based think tank, notes that renewables and energy storage have been pitched as the way to drive down consumer power prices and argues that “hidden” network costs means that this has not eventuated.
Wood was commenting on the widely-publicised reductions in some end-user prices flowing from the Australian Energy Regulator’s latest decisions. "Solar, wind and batteries can provide power more cheaply than fossil fuels, and renewables have reached as high as 50 per cent in Australia’s main grid,” he says. “And they could have driven retail prices down further if not offset by the rising costs of new transmission lines.”
He also notes that the power savings flagged by the AER "are uneven.” In south-east Queensland, retail power prices will fall by 10.7 per cent and in New South Wales by up to 7.7 per cent. But in South Australia some customers will have a rise of 1.4 per cent and In Victoria, which has a separate default offer, retail prices will fall by five per cent. Small businesses will see larger falls – as much as 20.9 per cent in NSW.
Wood adds that average power bills for Australian households are around $2,000 a year. "The actual cost of wholesale power accounts for 30 to 40 per cent of the bill and network costs – the cost of getting the power to the consumer – make up another 40 per cent. The remaining amount is due to environmental and retailer costs.”
He says network costs have mostly increased in a range of five to 10 per cent. "The key contributor has been the cost of building new transmission lines and damage from extreme weather has also added costs in Queensland. Inflation adds extra cost to big projects.”
And he warns: "We may also see network prices rising more sharply, given community pushback against some new transmission projects and slow progress. Without new transmission lines, many renewable projects won’t be viable.
"We are in the middle of reshaping the electricity grid. The big unknown is new transmission – the missing piece of the clean energy transition. Until this is done, we will keep seeing lower wholesale costs offset by higher network costs.”
Federal Climate & Energy Minister Chris Bowen, in welcoming the Australian Energy Regulator price decision, says he expects the longer-term average renewables share of the grid to hit 50 per cent “quite soon” and insists that the government’s 82 per cent 2030 clean energy target remains achievable.
“We are far from saying mission accomplished,” he told media. “There’s a long way to go. Australians are continuing to feel cost of living pressure. Energy prices are still higher than we would like.”
Bowen’s attempts to frame the reductions as a renewables success story have been ridiculed by some media commentators and the government’s political opponents. Sky News host Chris Kenny portrayed them as "desperate spin” amid public debate about broader cost-of-living pressures and energy price volatility. The federal Coalition declared that recent years have seen "some of the largest electricity price increases on record”.
A Deakin University senior researcher, Dominic Doe Ahiaga-Dagbui, is warning of the need to improve “Australia’s remarkably poor record of delivering mega-projects on time and on budget”.
In a trade media commentary, he points to a study by consultants Deloitte finding that the cost of 13 publicly funded road, rail and energy projects have blown out by A$130 billion more than their initial estimates. They include Snowy Hydro 2.0, initially costed at $2 billion and to be completed by 2021. "Instead, it’s still under construction and some reports have its cost rising to $22 billion.”
Ahiaga-Dagbui adds: "Within a highly politicized project appraisal system, assumptions about costs versus benefit are rarely subjected to rigorous independent scrutiny.”
He says: "Australia needs a truly independent statutory authority with real power to oversee major projects.” And he adds: "Full public disclosure of cost and benefit estimates should be a legal requirement, before projects can get financial commitment.”
From time to time I encounter interlocutors who criticize me for having what they see as an overly negative view of the “energy transition’ in Australia — to which my response, in shorthand, is “look around you.”
There are, of course, not a few commentators on the scene for whom the transition trajectory spearheaded nationally by Chris Bowen and supported by Labor State governments, notably the regime in Victoria, is the only way to go.
In this they are not alone; similar, or even stronger, paths are being pursued in Britain and parts of mainland Europe, South America and so on.
Here in Australia, the critics of Bowen and his fellow travellers have grown increasingly strident in recent times and the “climate wars” so beloved of media commentators and their headline writers over nearly two decades seem to be again well to the fore locally.
Heat has been added to the arguments by the flow-on effects — for Australia and elsewhere -- of the US/Israel war with Iran and the crisis flowing from the Strait of Hormutz blockade.
Chris Uhlmann of News Limited made (yet another) good point in one of his latest homilies: "Producing affordable, reliable energy using all our natural resources should be the goal of any sensible government. Without it we will go broke. We should reduce emissions where we can, as fast as we sensibly can, within the limits imposed by physics, engineering and economics, not driven by slogans such as net zero.”
And, in another, he quotes German economic affairs and energy minister Katherina Reiche: "One fact has been suppressed for too long: an energy transition that ignores system costs will ruin the country it claims to save.” Amen to that, too.
Early in May I was interested to read an op-ed in the Australian Financial Review by Stephen Anthony, a director of Macroeconomics Advisory and an adjunct professor at the University of Canberra. His core point: ignoring physics won’t make electricity affordable.
He told AFR readers: "Latest estimates suggest Australia needs wind capacity to rise from about 14 gigawatts to 68GW, solar from 20GW to 66GW and storage to increase seven times to 52GW. All to replace just 23GW of existing coal generation from the national grid.
"Amazingly, no Australian government has ever sought to compare the costs of a fully renewable transition to the impost associated with just keeping/upgrading coal plants (with pollution controls) or heating those steam turbines with alternative technologies.
"This is a huge planning gap, literally a massive policy blunder.
"Properly measured, the extra economic costs associated with the renewables transition could reach hundreds of billions – or even $1 trillion or $2 trillion in today’s money.
"That means lower living standards on average and fewer tax dollars to fund high-priority spending programs like schools and hospitals. It also implies the exit of heavy industry overseas and that the poor and many elderly people will need subsidies to power their homes.”
Anthony declares: "The right approach is a fair, physics-based look at all technological options: clean coal/gas, small nuclear reactors, hydro, batteries, wind/solar and long-term thermal storage. Treat the transition as an engineering task with three constraints – cut emissions, keep grid stable, ensure enough power – and aim for the lowest total cost.”
To which he adds: "Many actual energy experts in engineering and physics say the switch to net zero will be very hard. Some argue that it’s not even possible in a reasonable time for an acceptable cost.”
Take on board these comments in the context of my notes in the Quotes segment of this newsletter edition and, as they say in Yorkshire, “think on.”
Keith Orchison
30 May 2026