Chapter 5Residential electrification and the grid
5.1As discussed in the previous chapter, residential electrification has significant implications for building and appliances standards that impact energy efficiency behind the meter.
5.2However, the committee also received evidence that residential electrification will also have significant implications on energy infrastructure in front of the meter—that is, the utility side of Australia’s electricity grid. As outlined in this chapter, inquiry participants gave evidence on the following grid implications of electrification:
managing the challenge of variable electricity demand;
the importance of battery storage in managing grid stability; and
the investments in grid infrastructure needed to support electrification.
5.3Noting the evidence received during the inquiry, the chapter concludes with consideration of the optimal timeframe for residential electrification.
Managing the challenge of variable electricity demand
5.4Australia’s electricity grid already faces variable energy demand challenges. Daytime electricity use is generally low, leading to a reduction in daytime energy prices. In the evening or on a particularly hot day, energy demand peaks leading to price increases and potential grid instability.
5.5However, the widescale changes to Australia’s energy use dynamics through electrification are expected to exacerbate the challenge of managing variable electricity demand. In particular, residential electrification will shift households’ energy demand with impacts for both minimum operating conditions and peak demand.
Consumer energy resources and grid integration
5.6Australia has seen very high levels of uptake of rooftop solar. Today, over four million households have rooftop solar installed with a total generation capacity of almost 25 GW, exceeding that of Australia’s coal-fired power stations.[2]
5.7While rooftop solar in Australia has many considerable benefits, it has also added to the complexity of managing variable electricity demand. Energy generation from solar is generally high during the day and, combined with low daytime electricity use, this can drive down minimum operating conditions. Further, the switch to electric appliances is expected to exacerbate maximum demand periods outside of daylight hours.
5.8Indeed, several submitters raised concerns about the implications of the abovementioned situation on the price consumers pay for energy. For example, while supportive of increased electrification in Australia, Energy Flex raised concerns that:
… the renewable energy transition will inevitably lead to intra-day price separation, i.e., prices will crash when renewables are generating and skyrocket when firmed power (whether from storage or flexible (CCS supported) fossil fuel generation). Spot prices in the [National Energy Market] are already exhibiting this trend …
5.9Australia’s electricity system, as Australian Energy Market Operator (AEMO) has explained, was ‘originally designed for power to flow from large power stations through a network of substations and power lines into homes and businesses’. However, today ‘electricity from millions of rooftop solar systems feed back into the grid’. The committee heard that this can result in a voltage control problem:
[The] Voltage control problem in low voltage electrical distribution networks supplying residential customers has motivated most utilities to adopt solutions such as declining new installations at specific neighbourhoods, rejecting installations of systems larger than 5kW at some other districts, imposing export limits to new installations (i.e., capping the exported surplus energy from the photovoltaic systems into the grid) or emergency shut-down of the systems (i.e., entirely stopping the generation of photovoltaic energy for a period that can vary from minutes to hours). While these approaches help the utilities to mitigate the voltage and frequency problem in their networks, such solutions are uneconomic for the owners of the rooftop photovoltaic systems (i.e., the households who have invested in them).
5.10For several years, AEMO has warned of the challenges of integrating widescale solar into Australia’s electricity grids.
Many households and businesses are taking steps to shape their own energy futures. They are adopting innovative ways to reduce and manage their demand, investing in what the industry collectively refers to as ‘consumer energy resources’ (solar systems, batteries, electric vehicles), and contributing to virtual power plants (VPPs) to bring them together. These innovations and resources – supported by distribution, system operators and third parties – are playing a transformative role in the energy transition and will be a valuable resource in the future energy system. If they are well coordinated (‘orchestrated’), they help deliver reliable and secure energy, offset the need for grid-scale investment, and reduce costs for consumers as well as energy sector emissions. The ISP assumes this orchestration will occur at varying levels across each of AEMO’s scenarios.[8]
5.11In its 2024 Integrated System Plan (ISP), AEMO raised concerns about the risk associated with CERs not being adequately integrated into the existing electricity grid. The ISP noted that without effective coordination with consumer batteries, an additional $4.1billion in investment in the grid would be needed, adding to the cost of consumer bills. It went on to say
Ultimately, consumers who own these systems will choose how they are used. They will need transparency and material benefits to ensure they support, with confidence, their systems being coordinated with the power system.
5.12Mr Tennant Reed, Director of Climate Change and Energy of the Australian Industry Group provided more detail on reducing grid demand to prevent problems associated with grid integration. He suggested standards or incentives relating to the timing for charging electric vehicles and heat pump systems to coincide with the middle of the day, the cheapest time for energy usage. He also advocated for capability for less frequent demand stressors on the electricity grid, such as during heat waves or when a large generator fails. He pointed out there was a lot of potential for reducing demand in the grid but this would require bringing together elements like standards, customer education and financial incentives to real its full potential.
5.13Dr Rober Barr of Electric Power Consulting Pty Ltd was of the view that while solar panels and community batteries have provided benefits, there was still a significant need for electricity grid storage to be provided quickly. He told the committee ‘we need to have … low-emission, dispatchable generation that’s grid connected, with all other things in moderation’.
5.14Mr Neil Roberts, Director of Technical and Safety Policy at the National Electrical and Communications Association, stated that bidirectional electricity flow was an issue being considered by networks. He outlined that different jurisdictions were handling this issue in different ways, with Queensland implementing new metering rules which include network control devices on customer’s switchboards which help prevent network collapses. South Australia and Western Australia had similar measures in place but other jurisdictions had taken different approaches. He expressed concerns about this inconsistency between jurisdictions for both communications with customers and what capacity is being built into connection arrangements.
Main types of transition investment
5.15Evidence to the committee noted that the switch to renewable energy sources would require significant investment in transmission grids, making the point that renewable energy sources, particularly wind and solar, were largely being built far from existing infrastructure.
5.16Ms Charlotte Eddy of AusNet Services made the point that widespread electrification would lead to increased demands on the electricity grid and would likely require replacement of significant parts of the network, ‘from transformers, right down to street-level or low-voltage investments – for example wires with extra capacity’.
5.17Mr Marc England, Chief Executive Officer of Ausgrid, explained that electrification could be broken into three categories: electrification of transport, electrification of homes, and distributed generation from, for example, solar panels on rooftops. All three, Mr England explained, needed policy clarity in order to be implemented successfully.
5.18Dr David Sweeting, Director at Sweeting Consulting Pty Ltd, warned that the cost of transmission and distribution upgrades could be ‘around two and a half to three times the cost of the traditional dispatchable system – before we pay for any solar, any wind or any firming capacity’. He went on to say:
We need to consider these distribution costs and how they're going to impact it and work out how we're going to lower the price of electricity while we increase the total cost of dispatchable generation and the total cost of the transmission and distribution system well above the previous price of electricity.
5.19Dr Sweeting was of the view, however, that the Australian public would be willing to ‘co-invest with the government’ on the cost of upgrades to the electricity grid, if given the right incentives.
Costs of rooftop solar in electrification
5.20Several submissions to the inquiry and witnesses at public hearings discussed the costs associated with rooftop solar and its role in residential electrification.
5.21Dr Tennant Reed, Director of Climate Change and Energy at the Australian Industry Group, argued that household electrification ‘done well’ could minimise costs or even provide savings for the broader electricity grid. However, there were also risks that poorly done electrification could increase peak demand as well as the infrastructure and generation required to support it.
5.22Dr Rober Barr, Director at Electric Power Consulting Pty Ltd, cautioned against an overreliance on rooftop solar to provide network support and cost savings to the electricity grid. He told the committee that solar in-and-of-itself did not provide more network support, but does the opposite by creating reverse power flows. He noted that ‘this is one of the big costs not included in the Integrated System Plan – the cost of augmentation, particularly in the distribution network, and also…the costs of batteries that need to be there to firm up the solar PV so that it takes some stress off the network’.
5.23Dr Barr urged moderation in the installation of rooftop solar, explaining that at high levels of uptake it could become counterproductive to electricity supply and highly costly. He stated that there was an ‘optimum’ level of rooftop solar which Australia was currently very close to achieving.
5.24Other witnesses at public hearings took a different view. Mr Rainer Korte, CEO of ElectraNet, was of the view that electrification could improve the utilisation of the electricity network by providing more energy on the grid, and by extension lowering the costs of electricity. He pointed out the driver of increased transmission investment was increased peak-time demand and that, so long as new pressures on demand (such as electric vehicle car charging) were managed in such a way as to utilise non-peak demand electricity, this would not meaningfully increase network costs. He pointed out that it was the electrification of industrial loads which was more likely to have an impact on the transmission network in the medium term.
5.25Mr Reed of the Australian Industry Group advised that the amount of additional electricity load which would be generated by electrification of home heating and light transport would not be very large, with the larger impact being peak demands that are placed on the network. He added that the bulk of network costs paid for by households and businesses are distribution network costs, and that this had the greatest potential for future costs either being avoided or incurred.
5.26Submissions to the inquiry made the point that the move towards residential electrification would require the upgrade of distribution networks and a number of household switchboards.
5.27Evergen emphasised in its submission the need for adequate planning of widespread electrification in order to ensure that the electrical system remained affordable and reliable. It also submitted:
AEMO has forecast that the electrification of households will be a driver of growth in both minimum operational demand conditions and peak demand. Rooftop PV drives down minimum operational demand during the daylight hours, while maximum demand periods are forecast to frequently occur outside the daylight hours, with the switch to electrification of appliances.
Expensive network and household electrical upgrades
5.28Conversely, the Institute for Energy Economics and Financial Analysis submitted that the ‘small number’ of studies which suggest that residential electrification would result in ‘costly impacts on electricity networks’ are ‘likely overstated’.
5.29The Climate Council noted the costs of maintaining, upgrading and installing gas network assets was also passed on to consumers in the form of supply and usage charges in gas bills, which can make up to 40 to 50 per cent of a household's gas bill.
5.30Energy Flex argued that current household electricity usage, with lower use during the day that peaks in the evening, ‘represents the worst possible profile for a renewable energy system’:
Household use peaks in the evening, as solar generation crashes and wind typically drops off, continues at a relatively high level overnight, peaks again just before solar generation kicks in and then drops off during the day.
Energy Flex went on to say that price inflation of electricity was inevitable if the renewable energy transition occurred without any changes in demand, noting that benefits of cheaper renewable energy would be eaten by the costs of storage (firming).
Ensuring the stability and reliability of the grid
5.31The committee heard some concerns around how the transition toward, or uptake of, electrification may impact the stability and reliability of Australia’s energy grid.
5.32For example, the Institute of Public affairs submitted:
Australia’s electricity network and energy infrastructure are already being put under considerable stress by the rapid and ill-considered decommissioning of coal-fired power stations and installation of variable renewable sources of energy, which create fluctuations that the energy grid is ill-equipped to cope with. Increasing demand even further by pursuing electrification will exacerbate the problem for the energy grid.
5.33Evoenergy, which owns and operates the electricity distribution network in the ACT and gas distribution networks in the ACT and in some local government in NSW, also noted that the pace of the transition is posing planning challenges for both electricity and gas networks.
5.34However, Evoenergy also considered that this also presents opportunities for new technologies and consumer choice to enable wider community participation.
Importance of battery storage in managing grid stability
5.35Evidence to the committee highlighted the important role of batteries to manage increased demand on the energy grid, and how investing in, and incentivising the roll out of these technologies is key to the energy transition.
5.36For example, in a joint submission, a group of electrical engineering and energy academics, advised that community battery energy storage systems are a solution to alleviate the strain on the network. They added that ‘appropriate tariff structures and incentives should be developed as they are crucial for the success of these systems’.
5.37Further, Tesla emphasised the need for government support for residential energy storage ‘due to the critical role that behind the-meter assets will play in meeting future capacity requirements’. It specifically called for an extension of the Commonwealth’s Small-Scale Renewable Energy Scheme:
… [Tesla] recommends an extension of the Small-Scale Renewable Energy Scheme, offering a financial incentive to install small-scale renewable energy systems through awarding small-scale technology certificates (STCs), to also include small-scale batteries in the program.
5.38At a public hearing, Mr Chris Lehmann, National Advocacy Manager, Master Electricians Australia, similarly emphasised the importance of battery energy storage. While Mr Lehmann noted that the Australian Government is already investing significant amounts of taxpayer money in these technologies, he indicated that moving towards a co-investment model with government and consumers would be preferable.
5.39Specifically, Mr Lehmann suggested that the Australian and state governments should work together to establish a rebate scheme to coinvest with the public to bring extra storage into Australia’s network.
5.40Mr Lehmann provided the following examples:
A rebate or a grant of anywhere between $3,000 and $7,000 has been granted in various jurisdictions across the country to consumers, whether they be business or private consumers, to be able to install battery energy storage. Some jurisdictions have gone down the low-interest loan path, especially for businesses to incentivise them to utilise their existing PV or future PV to offset their running costs and to maybe also be an income source in the evening and export back to the grid.
5.41Several inquiry participants considered that increasing the rate of battery energy storage systems (BESS) in Australian dwellings is an important solution to managing excess daytime solar energy generation and reducing demand placed on the grid during periods of peak energy use.
5.42However, many inquiry participants also noted the high-cost of installing residential BESS is prohibitive for many Australians. Alternatively, some submitters suggested that community battery energy storage systems could help to ‘will absorb the excess electricity produced from distributed rooftop photovoltaic systems within a neighbourhood during the day and provide a steady electricity supply during the network's peak demand (usually in the evening or afternoon) to the same area’.
Role of technology
5.43Mr Marc England, Chief Executive Officer of Ausgrid, was more optimistic about the challenges posed to the electricity grid by increased demand from electrification. He stated that as long as there were consistent and long-term policy signals, electricity suppliers can build their networks to efficiently meet demand. Mr England pointed to overseas examples where technology and data analytics were enabling demand to be spread to lower demand times in the day. Mr England explained that peak loads will need to be managed efficiently in order to ensure ‘the lowest cost transition possible.’
Role of battery storage in grid management
5.44In addition to the benefits that household BESS have for consumers, they also play an important role in managing peak electricity demand.
5.45Evergen, an Australian energy management software company, submitted that, compared to a rooftop only solar system, battery storage has two benefits as they:
reduce solar export, with benefits regarding local network constraints and minimum operational demand conditions; and
reduce peak demand, via storing PV energy for use during after-sundown peaks.
5.46Mr Rainer Korte, of ElectraNet provided evidence that batteries were going to be a key element in reducing the stresses to the electricity network of peak demand. He stated that if battery resources can be coordinated they could be an important addition to addressing the challenges of the switch to renewable and decarbonised energy. There are currently virtual power plants in operation which are starting to perform this role.
5.47Mr England of Ausgrid took a different view, stating that a significant portion of the storage need required could be provided by the distribution network at a lower cost than the installation of home batteries. He further explained that a medium sized grid battery in the network could offer the same effect to consumers as a home battery for a third of the cost of the home battery. Ausgrid had been trialling this kind of grid-based battery model through a program funded by ARENA, and had found that grid batteries could play an important role in reducing the costs to consumers and allowing more of them to install rooftop solar panels, more generally lowering the costs of transition to renewables and electrification.
5.48Mr England was able to provide detail on the comparative costs of home batteries compared to a grid battery. Currently, a home battery would cost a consumer $1200 per kilowatt hour, whereas a battery put into the grid offered to a consumer to store excess electricity would costs between $400 and $500 per kilowatt hour. However, Mr England pointed out that under the current regulatory framework, Ausgrid, as a distributor, would not be able to store batteries in its network without a specific waiver for a specific battery.
Investments in grid infrastructure needed to support electrification
5.49AiGroup also pointed out that grid infrastructure will require ‘significant investment’ to be able to manage demand and more complicated electrical distribution, and added:
This will require more energy storage and more capability to move electricity around the network. The amount of investment needed could be much larger or much smaller depending on our success in coordinating the transition. National coherence and cooperation will be essential.
Wiring upgrades
5.50Additionally, significant wiring upgrades to Australia’s electricity grid are also needed to integrate residential electrification technologies. For instance, the electricity grid now needs to support over four million rooftop solar systems with a generation capacity of almost 25 GW, exceeding the capacity of Australia’s coal-fired power stations.[46]
Optimal timeframe for residential electrification
Expediting residential electrification to address environmental challenges
5.51Many inquiry participants considered that efforts to electrify Australian homes should not be delayed given what they regarded as the environmental imperative to decarbonise.[47]
5.52For instance, the City of Sydney submitted that ‘[t]he optimal timeline for household electrification to commence is now’. The Energy Efficiency Council also considered that electrification is a ‘task we need to start now’, noting that there are some five million homes connected to the gas network and Australia has set an emissions reduction target of net zero by 2050.[49] Further, Environment Victoria submitted that ‘delaying residential electrification is a climate change luxury we cannot afford’ and maintained that Australia should ‘aim for full residential electrification over the next 10 years’.[50]
5.53While expressing similar views, the Property Council of Australia argued for all new-build homes in Australia to be electrified:
Zero-carbon-ready homes can be delivered today with technology that exists in the market right now, and if the grid decarbonises then the remaining emissions from fossil fuel gas must be eliminated. There's no time for delay. Electrification is the only viable pathway that exists today to do this. In this critical decade, if we know anything about the complexity and time it will take to electrify over five million homes across the country, decisive action and clear direction of travel are needed now. We need to start by making the problem no worse than it already is. This means that, from today, every new home should be all electric.[51]
5.54Several other submitters supported pursuing an expeditious timeframe for residential electrification given the availability of energy efficient electric technologies.Luke Menzel, CEO of the Energy Efficiency Council, told the committee:
We have safe, reliable and efficient technology—induction cooktops and heat pumps for space heating and cooling and for hot water—that is ready to go and commercially available and that, indeed, many Australians are already using and benefiting from.[53]
5.55Further, Tesla submitted that, ‘once macro-economic barriers and policy uncertainties are addressed’ residential solar, storage, and EV technologies could be rapidly deployed to meet decarbonisation targets.[54]
5.56The Tasmanian Climate Collective stated it supported the ‘rapid decarbonisation of household electricity as soon as technically possible (based on advice from independent scientists and engineers)’.[55] The Jewish Climate Network expressed a similar view, stating that:
… the optimal timeline for household electrification should be as fast as possible, albeit in conjunction with advice from AEMO and other relevant energy authorities, and in conjunction with policies that fast-track new grid connections and energy infrastructure, as well as large scale energy storage and firming. All of this needs to be done with proper community consultation, especially with Traditional Owners.[56]
5.57The Institute for Energy Economics and Financial Analysis argued that for ‘each year that a transition to electrification is delayed, consumers may be locking in up to an additional $1.6 billion in avoidable lifetime costs from gas appliances’.[57]
5.58In contrast, some inquiry participants did not agree with the case for an urgent residential electrification transition. Dr Barr, for example, called for the government to focus initial efforts on ‘greening the grid’ by reducing the emissions and improving the efficiency of current base-load generation. He stated:
… I don't think we should be going through this electrification transformation, this domestic electrification, until the costs are down low—probably half—and emissions are down to about a third of what they are at the moment. Then it makes sense to start swapping over. Clean the grid up before we do the transfer.[58]
5.59Dr Barr advised that an approach that prioritised ‘greening the grid’ first would be more cost effective. Dr Barr noted that despite the fact that wind and solar are low-cost generation sources, significant costs arise from the storage and transmission of energy from renewables, particularly to meet the energy load demands in wind droughts and when solar output is low.[59] Dr Barr suggested that greening of the grid could include a move towards nuclear in mid-2030’s. He advised:
It's a very difficult task, getting emissions levels down. I think in the 2030s it would be moving towards nuclear. We've got to patch the system up and we've got to keep the system going until we reach that time when we can bring online some nuclear power stations, which could actually drive emissions down to the levels that would make electrification worthwhile. [60]
The complexity of transitioning to widespread household electrification
The optimal timeline for household electrification is complex. As gas prices rise, there is risk that those who cannot electrify without assistance will be left to bear the costs. The optimal timeline for household electrification should include support for those who require assistance to electrify their households.
The optimal timeline for household electrification will vary at a household and jurisdictional level. By setting a clear timeline for the phase out of fossil fuel gas in the ACT, residents and businesses have been given a long lead time to plan and implement their transition to electrification.[61]
5.60Lighter Footprints Inc. was of the view that ‘the optimal timeframe is for an immediate change’ but was also cognisant that this could be impractical. On that basis they recommended that all new homes be built with a National House Energy Rating Scheme (NatHERS) rating of six or seven and solar panels installed, contending these homes would be cheaper to build and would have lower emissions than other types of homes. They also recommended that it be government policy to transition away from gas in households.[62]
5.61Transition Kingston was also of the view that the electrification transition should be done as soon as possible.[63]
5.62Taking a different view, the Australian Gas Infrastructure Group considered that the appropriate timeline for residential electrification would be one that supported consumer choice in energy supply rather than mandating electrification by a certain time.[64]
5.63The Investor Group on Climate Change argued that ‘the optimate timeline for … electrification is one which allows for market entry of sophisticated, data driven enterprises, capable of aggregating residential DERs and scaling their impact’.[65]
5.64Other submissions noted that availability of labour and savings for consumers would play a large role in determining the timeline for electrification.[66]
5.65On a similar note, Electric Power Consulting explained that the timeline for residential electrification should
Any timeline for increasing home electrification should be linked to achieving substantially reduced electricity costs and lowering power system carbon emissions. Premature electrification of households will simply put increased burdens on electricity customers and will not achieve the desired lowering of emissions.[67]
Staggered approach
5.66The National Electricity and Communications Association (NECA) was of the view that the idea timeframe for residential electrification would be ‘within the decade prior to the global net zero target of 2025’. This timeframe would allow for:
communication and implementation of policy and legislation by government and regulators;
upskilling an electrical workforce that can perform required installation work as well as maintenance into the future; and
addressing the high volume of existing installations which will require conversions of some kind. The conversion of existing multi-occupancy buildings is expected to present administrative and engineering challenges in particular.[69]
5.67The South Australian Council of Social Service (SACOSS) was in favour of ambitious targets for electrification and encouraged the adoption of a timeline developed by the Efficient Electric Homes Collaboration. This timeline could be broadly summarised as:
by 2025: all new homes constructed to be electric and energy efficient in order to minimise any future retrofitting requirements;
by 2030: priority retrofitting of public and community housing. All First Nations remote and regional housing to be electric and energy efficient as well as all low-income owner occupied housing;
by 2035: all homes to be electric and energy efficient, including all existing homes being retrofitted, including rental properties.[70]
5.68Energetic Communities was also in favour of the above staged approached with electrification completed by 2035. Their submission stated:
From a household standpoint, electrifying as soon as possible is highly beneficial. However, this is not tenable at scale. The optimal timeline for electrification of all households should be informed from modelling that considers householder health, all housing energy efficiency measures available (building and appliances), the impacts on electricity demand and its ramification on electricity prices, gas prices, gas assets cost recovery, supply chain constraints and development.[71]
5.69Also supportive of the Efficient Electric Homes Collaboration’s staged approach was the Public Interest Advocacy Centre. This organisation emphasised the need for certainty, concrete targets, and strong policy to back electrification. This certainty would allow households to make better investment and purchasing decisions, States and Territories to align with federal government policies, commencement of future planning for existing gas networks to manage the transition and the realisation of reduced emissions.[72]
… housing tenure, age and sector, such as new and existing, owner occupied and rentals, and public, community and Indigenous housing. Targets could, for example, aim to electrify all households by 2035, with new homes under the National Construction Code…being built as all electric by 2025, and existing homes by the later date of 2035.
5.70Taking a different view, Ms Charlotte Eddy of AusNet Services brought to the committee’s attention the difficulties associated with the decommissioning of the existing gas network. She suggested that a longer, managed period of decommissioning would help manage the costs for customers who remain on the gas network, which would likely include more vulnerable customers.[74]