The high cost of Australia's electricity grid reveals the importance of careful infrastructure planning


A reliable electricity network represents key infrastructure to enable our economy to function efficiently and businesses to plan and operate with confidence.

A report by the Grattan Institute suggests that, while reliability of supply has improved slightly, expenditure on Australia’s national electricity grid has significantly outstripped growth in population, demand and even peak demand.

The report suggests that consumers connected to the National Electricity Market are paying for a power grid that grew from around $50 billion in 2005 to $90 billion today.

The Grattan Institute researchers estimate that up to $20 billion of investment in power networks was excessive, mostly in NSW and Queensland. They found that the main causes of over-investment were regulatory incentives and public ownership, and excessive reliability standards.

One of the causes, has been that commercial buildings and domestic appliances are becoming more efficient thus slowing consumption. At the same time many households and businesses have adopted solar power and other alternatives thus also reducing demand. This highlights the need for infrastructure planners to consider the longer term. Infrastructure is by its nature a very long-term asset. At the planning stage it is essential to consider future trends such as energy efficiency or the potential impact of autonomous vehicles on road planning.

The Commonwealth Bank’s Michael Thorpe notes that roads demonstrate this need well saying, “unlike in the past, when planning for new transport infrastructure we now need more extensive analysis on the development of autonomous vehicles and the impact they may have on traffic patterns, volumes and road usage”.

In an environment of lower returns and cost pressures, it is also vital to pay close attention to capital costs and project execution. Spending more than planned or more than is necessary to meet demand can result in returns being very quickly eroded. Passing on higher costs to consumers is not always an option.

For example, higher road tolls could lead to drivers forsaking toll roads and reverting to longer but cheaper routes. This could result in traffic usage falling below projected levels and reducing returns from a road project.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.