Could under-investment be worse than under-utilisation for Australia’s energy networks?

A year ago, when Clare Savage, Australian Energy Regulator Chair, started urging Australian energy networks “before we build more, let’s use more,” it was clear that her argument was rooted in consumer protection. That’s understandable. It’s been more than a decade since a step-change increase in network investment (the so-called ‘gold plating’) was a major contributor to rising power prices across much of the country. As a result, debates about the future of energy networks, and the investments needed to support the transition remain closely linked to affordability.

Network investment is ultimately paid for by consumers, and so the regulator is understandably focused on protecting consumers from over-investment. If our electricity grid is under-utilised, then consumers pay for capacity that’s sitting idle most of the time. Building too much, too soon, risks driving up bills unnecessarily. At a time when cost-of-living pressures are intense, there is a strong case for squeezing as much efficiency out of the existing grid as possible before investing further. 

So it’s interesting to see the UK taking an entirely opposite approach.

The UK is doubling its annual spend on distribution networks

The UK’s National Infrastructure Commission (NIC) provides the UK government with impartial, expert advice on major long-term infrastructure challenges. And it has signalled that it wants the UK to move away from the era of cautious, incremental investment in distribution networks. Its groundbreaking report, Electricity distribution networks: Creating capacity for the future, argued that while a reactive approach made sense in times of steady demand, it is no longer fit for purpose in an electrifying economy.

The report from the UK NIC is focused squarely on projections of surging energy demand. Its rationale to prioritise new grid investment is that, if the grid is not ready as industries electrify, connections will stall, decarbonisation will slow, and economic growth will be constrained. 

This appears to rely on the idea that underutilisation, if it happens at all, will be temporary. And it’s putting its money where its mouth is. NIC estimates that getting ready to meet future electricity demand will require between £37 billion and £50 billion of investment in distribution networks between now and 2050. That represents a doubling of current annual spend, with the steepest acceleration needed over the next five to ten years.

The UK Government has thrown its weight behind the approach, with the Energy Minister stressing that proactive investment will ensure households can adopt green technologies like EV charging and heat pumps, while electrifying businesses can quickly connect to the green energy they need.

Ofgem, the UK regulator, has also embraced this shift. Responding to the NIC report, Ofgem announced a revised price review framework it described as “transformational”. The first focus area of the new framework is squarely aimed at emissions reduction readiness, stating that a “more proactive approach to investment will ensure the networks are ready for a net zero future.” Networks will be funded upfront to build the infrastructure needed – and then held firmly to account for delivery. 

Over the last decade, Ofgem focused on a ‘flex first’ approach, requiring electricity networks to utilise flexible demand and generation, rather than augmenting the grid. This shift in approach has raised the question: ‘Is flex dead in the UK?’ Probably not, but its role is evolving to flex now being used to deliver whole-of-system value rather than deferring network expenditure. 

Should Australia take a similar path? 

We cannot simply cut and paste the UK approach to Australia. Our regulatory frameworks, incentive structures and networks are different. Any proactive investment approach must be designed to fit Australian conditions. That will mean clear regulatory guardrails, robust consumer protections and careful sequencing of investment to balance cost and readiness.

Yet the driver – decarbonisation via an electrification-heavy pathway – is the same in Australia as in Great Britian. Australia has a target of 82% renewables by 2030 and a broader target of net zero by 2050. The Federal Government is expected to announce its 2035 emissions target in the coming weeks along with the sector plans to deliver it. Electrification will be a key part of all of these sector plans. Will we have the electricity network we need to deliver this?

Productivity has been a hot topic of late – and in many ways that’s what this boils down to.  Australia is currently taking a cautious path, with a productivity focus on wringing more utilisation out of existing assets to keep down bills and avoid the risk of stranded infrastructure. Over the near-term, this should increase productivity.

Now we are starting to see an alternative approach emerging in the UK, whereby a longer-term productivity focus suggests investing ahead of demand to ensure the grid is ready for what’s coming.

Neither path is risk-free. But to weigh up what is right for our country, we need to get a better handle on the potential cost of Australia sticking with the current restrained approach. 

The UK argument is that, once demand growth accelerates, waiting becomes a much bigger risk than over-investment. Networks are seen as a critical enabler of all forms of electricity demand, including decarbonisation measures and key growth opportunities in new industries such as gigafactories and data centres.

Like Australia, the UK has seen lengthy delays in the delivery of major new transmission lines required to bring renewable electricity to customers. Part of the rationale for the pro-investment approach is to ensure the same thing doesn’t happen at the distribution level, putting in place a robust and fit-for-purpose distribution network as demand for electricity grows.

The cost of earlier investment in networks will run into the billions. But the UK view is that the price of losing jobs, economic growth and export opportunities would be even higher.

If Australia cannot unlock electrification at the same rate as our global peers, we may find ourselves in the situation the UK is trying to avoid: missed decarbonisation targets, slower uptake of new technologies and lost economic opportunities. 

Australian policymakers’ wariness of repeating the over-investment episodes of the past is understandable. But the National Electricity Objective clearly requires our regulators and policymakers to look forward not back – and to consider the long-term interests of consumers.

The 2026 Integrated System Plan will consider opportunities and constraints in distribution networks for the first time. With the need to connect new renewable generation and storage continuing to grow and rising costs for building transmission networks, we are bound to see a stronger focus on unlocking capacity in distribution.

Some of this capacity is already there, research by Energy Networks Australia has shown that, by 2030, smarter use of the local distribution grid could unlock $7 billion in annual consumer benefits alone. But to get the most out of our distribution networks we’re going to need to invest more in them. Much more.

AEMO forecasts electricity use to more than double by 2050, with distributed resources playing an ever-growing role. In that context, it’s worth considering what we think our electricity grid will need to be capable of by 2050. The crux of this is: does it make sense for us to continue investment restraint? Or should we follow the UK example, investing more proactively in our networks to unlock future opportunities? 

If you'd like to discuss this topic further or explore any of the points mentioned, feel free to reach out to our team below.