Article by Ryan Cropp and Patrick Durkin, courtesy of Financial Review
01.06.2025
The total cost to households and businesses for the upgrade to Victoria’s electricity grid, required to support the shift to renewable energy, will be more than four times the $4.3 billion figure set out in a transition road map unveiled last month.
Experts say the bill for building the network of poles and wires is likely to be more than $20 billion.
Victoria’s Energy and Resources Minister Lily D’Ambrosio last month released a plan to construct seven new renewable energy zones across the state, which put the “total economic cost” of the state’s 15-year plan to replace coal-fired power generators at around $4.3 billion.
But the figure, which was buried on page 95 of VicGrid’s 112-page document, does not account for several critical transmission projects, including the Western Renewables Link, the Victoria to New South Wales Interconnector West and the Marinus Link cable under the Bass Strait, which together are estimated to cost more than $16 billion.
“There has not been a realistic accounting for the cost of transmission expansion yet,” said Professor Bruce Mountain, the director of the Victoria Energy Policy Centre.
“VicGrid’s estimates don’t account for the latest cost information, which AEMO has now recognised,” he said, referring to a report by the Australian Energy Market Operator this month that revealed the estimated cost of new transmission projects had increased between 25 and 55 per cent relative to 2024 figures.
Australia is in the early stages of a construction wave which is intended to produce around 10,000 kilometres of new poles and wires connecting new solar and wind infrastructure to homes and businesses. Community opposition and supply-chain issues have already contributed to significant cost blowouts and delays.
According to government modelling, Victoria’s $4.3 billion estimate was made using the “Class 5” classification system, meaning the costs could potentially be up to 100 per cent higher, the plan said.
“Economic costs are produced for the purpose of the cost-benefit analysis and are not equivalent to financial costs. For example, economic costs exclude financing costs (interest payments) and depreciation and are based on real rather than nominal values,” it said.
“VicGrid recognises the dynamic market for transmission projects and will consult with industry to further refine the costs and timings.”
Mountain said the total capital outlays of the combined grid projects were closer to $17.5 billion, which would rise to $20 billion when accounting for interest expenses during construction.
“This is a bit over five times the total regulated value of Victoria’s existing transmission network,” he said.
The cost of building and maintaining poles and wires are recouped via consumer energy bills, which Mountain said would rise by about 50 per cent or more under the plan.
Asked by The Australian Financial Review about the failure to disclose the true cost of the overall plan, a VicGrid spokesman said that public estimates were available.
“The Victorian Transmission Plan identifies what new transmission projects are required to keep the lights on and deliver affordable renewable energy to Victorian homes and businesses as the state’s ageing coal power plants retire,” he said.
“The costings for major transmission projects that are already well advanced in Victoria, including VNI West, WRL and Marinus Link, are all publicly available.”
According to the chief executive of an energy business, who asked to remain anonymous because of ongoing dealings with the state government, the difference between the transmission plan’s cost estimates and the true cost of the transmission build-out was around $13 billion.
Also missing from VicGrid’s estimates was the network stability equipment essential for a renewables-dominated grid, adding billions of dollars more, the CEO said.
But Mountain said the CEO’s estimates did not take account of Marinus Link or interest expenses incurred during the build, putting the total cost of the network over $20 billion – around $16 billion more than the stated cost of the VicGrid plan, according to his calculations.
Victoria has the country’s most ambitious climate targets, aiming to reach net zero emissions by 2045 and deliver 95 per cent renewable energy by 2035.
“This important planning work will keep the lights on and deliver cheap renewable power to Victorian homes and businesses, long after our ageing coal power plants retire,” D’Ambrosio said.
The $20 billion figure far exceeds the $11 billion the Victorian government has set aside for its signature major project, the Suburban Rail Loop. The funding for another $20 billion required to complete the SRL project remains unclear and was not specified in the May 20 state budget, which delivered a slim $500 million surplus.
Opposition energy spokesman David Davis said the plan would turbocharge increases in the bills of every Victorian household and small business.
“Labor have no idea what they are doing, their financial estimates and costings are not worth the paper they are written on,” he said. “So many projects blow out far beyond Labor’s rubbery estimates.”
“The cost of a spider web of new wires will likely be well more than $10 billion, not these absurd [lowball] estimates. All these extraordinary costs will be sheeted home directly to struggling families and small as well as large businesses.”