Gas networks asked Victoria to stall electrification. Households and industry should hope it doesn’t

According to a Guardian article published on 24 September, Australian Gas Infrastructure Group (AGIG), owner of two of Victoria’s three gas distribution networks, urged the state government to walk back several new policies set to commence in 2027 to accelerate residential electrification.

Lobbying documents prepared for AGIG, based on the networks’ own unpublished pricing proposals, claimed these policies would force gas networks to pass on significant price rises to their consumers. In response, Victoria’s energy minister has confirmed that the government’s position “hasn’t changed” on electrification. 

And it’s easy to see why – AGIG’s claim conveniently overlooks the significant benefits underlying Victoria’s drive for electrification.

Gas was first promoted as a cheap household fuel to Victorians after it was discovered as a byproduct of oil extracted in Bass Strait in the 1970s. While that promise held true for many years, it has now come to an abrupt end, thanks to depleting gas reserves, higher prices, and advances in the efficiency of electric appliances.

Victoria’s Gas Substitution Roadmap aims to respond to the decline in gas availability by reducing demand – with a focus on households.

Incentives for household electrification were introduced to the state government Victorian Energy Upgrades (VEU) scheme in 2023. Our analysis estimates that households have saved around $185 million so far by taking up these incentives to replace their gas hot water systems and heaters – with the highest savings concentrated in Melbourne’s outer suburbs.

Figure 1: Cumulative savings for households that electrified under the VEU scheme by state electorate

The large savings aren’t a surprise. Modern electric appliances are far more efficient than gas, and as full electrification can save households more than $1,300 per year, making the switch tends to pay itself back very quickly. However, there’s a less intuitive second beneficiary of residential electrification: large gas users.

In addition to higher gas prices, Victoria faces a real risk of gas supply shortfalls in the next few years as its Bass Strait reserves run out. This is a dilemma for major industrial users who don’t yet have the option to electrify.

Alongside their energy bill savings, we estimate that households that have taken up electrification incentives in Victoria are now saving the state 5.5 petajoules (PJ) of gas a year. That’s equivalent to more than 40% of the gas Victoria used for power generation in 2025.

If electrification continues at current trends, the savings could exceed 40PJ a year by 2040. That’s a big reduction, but it’s not enough to fully avoid the risk of gas supply shortfalls.

Figure 2: Projected annual gas demand avoided if households keep electrifying at 2025-26 rates 

That’s where Victoria’s new policies come in. Starting in 2027, they would require most gas hot water systems, and most gas heaters in rental properties, to be gradually converted to electric equivalents when the old appliances break down. This would significantly accelerate the savings, providing much greater certainty for industrial users.

But should we heed the warnings of the gas network businesses?

There’s a kernel of truth behind the claim that electrification could increase gas prices. Gas networks are sitting on asset bases worth billions of dollars, which are paid for by gradually recouping costs from consumers via their energy bills. As households leave the gas network, those costs could be spread more thinly, increasing prices for those who remain.

But what the gas networks don’t mention is that they have been advocating to push even higher cost rises on to their consumers. An allowance called ‘accelerated depreciation’ allows the networks to bring forward more of their future asset costs to be paid for by today’s customers, in the hope that this protects the network from the risk of those assets becoming stranded.

Despite consumer advocates arguing that accelerated depreciation transfers risks onto consumers, a significant amount has already been granted to gas networks, and a new package of rule changes could see much higher levels approved in future. Analysis from a forthcoming IEEFA submission indicates that gas network charges in Victoria could rise by 23-49% by 2033, if gas networks were able to set their own accelerated depreciation allowance.

Figure 3: Forecast gas network charges for a Victorian residential gas consumer, 2032-33

Victoria shouldn’t ignore the issues raised by the gas networks – they point to several real and unresolved questions about who will bear the cost of their pipelines as growing numbers of households switch away from gas. And there is certainly a case for gas network shareholders to bear some of those costs – considering the $1.8 billion in excess profits that Australia’s gas networks made above their approved allowance between 2014 and 2022.

Victoria’s electrification initiatives are a sensible approach to save households money and set its industrial energy users up for a future with greater energy security. Addressing the challenges faced by gas networks will need careful consideration – but slamming the brakes on electrification isn’t the solution.

First published in RenewEconomy.