Australian Election Special - Comparison of Labor and Coalition Energy Policies

The Australian Federal election on Saturday 3 May is now under two weeks away. In this note we outline the key differences between the energy policies of the two major political parties, Labor and the Liberal/National Coalition, with a focus on the Australian electricity sector.

In the leaders debate between the Prime Minister Anthony Albanese and Peter Dutton on 16 April 2025 Mr Dutton noted that “energy is the economy”. The importance of the electricity sector to the Australian economy, and therefore the policy approach to the transition of the Australian electricity sector, cannot be understated.

The election represents a significant choice for voters on the best approach to the future of the Australian electricity sector. The major parties have a fundamentally different approach and view on:

• the generation technology mix that is best suited to replacing Australia’s aging coal-fired generation fleet while achieving net zero by 2050;
• the certainty that either approach will be achievable within the timeframes required; and
• the total cost of the different approaches and the level of Government funding and asset ownership required.

Labor will continue on its current path for the development of a primarily renewables-based electricity generation sector, supported by gas. Its policies include additional measures such as a $2 billion expansion of the Clean Energy Finance Corporation (CEFC) and a $2.3 billion program to encourage the uptake of household batteries. 

In contrast, the Coalition does not support such a reliance on renewables. Instead, it proposes the development of nuclear power baseload generation using existing transmission infrastructure, a National Gas Plan to enhance gas supply and gas-fired generation, slowing the development of onshore renewables projects and associated transmission projects and, consequently, a winding-back of several existing mechanisms such as the Rewiring the Nation Fund and several of the declared offshore wind zones.

While each party continues to support Australia achieving net zero by 2050, they offer quite different paths to getting there. They also offer materially different emissions reduction profiles to 2050. They use different assumptions, including Australia’s future electricity use, and are based on modelled costs that are uncertain and open to criticism on both sides. The choice between them (to the extent energy policy determines voting preferences) is likely to come down to which policy individual voters believe is more credible and likely to be achieved in the timeframes required.

The stark difference between the policies means that little can be borrowed from the other, except potentially for Labor to adopt a greater focus on gas in its generation mix and providing additional support for gas production and generation. This really is a fork in the road for energy policy in Australia. Given the imminent closure of Australia’s aging coal-fired generation fleet, timing is now crucial and the policy selected at this election will need to set Australia’s future direction. Australia cannot afford to continue to chop and change approaches over subsequent electoral cycles – it needs a clear policy direction for the next two decades. 

Both parties have described the other’s policies as “putting all their eggs in one basket”. On 3 May 2025 Australia must decide in which basket it wants to put its eggs.

Context

The policies of both major parties need to be considered in context:

• Australia’s existing coal-fired generation fleet is reaching the end of its design life. These generators are expected to progressively close during the late 2020s and 2030s or require significant investment to prolong their operating lives (if it is practically feasible to prolong their operating lives at all given the age of some plant);

• The development of new onshore renewable generation capacity and associated firming infrastructure is progressing but is still not at the pace required to replace coal-fired generation and meet increased electricity demand by the mid-2030s. A predominantly renewables generation mix also requires very significant investment in major new transmission network infrastructure, which has been troubled by delays and cost blow outs; 

• Several existing reforms and gas market interventions are aimed to bring down gas prices and incentivise producers to commit additional gas supply to the domestic market. Notwithstanding this, Australia is still expected to face natural gas shortfalls in the Eastern States by 2028¹, driven by moratoria on gas developments and the export of most of Australia’s gas production in the form of LNG;

• The development of an offshore wind generation sector still has a number of unsolved issues (for example, port locations, transmission and offtake) and has uncertain costs;

• There is no coordinated Federal/State plan for managing the transition away from coal-fired generation, including agreements with coal-fired generators to provide certainty on when they will close, how that capacity might be kept operating for longer if replacement generation is delayed, and how the over-supply of generation in the period where new generation is built but the existing generation has not yet closed will be managed; 

• An energy-only National Electricity Market that assumes generators bidding on the basis of marginal cost is no longer fit for purpose and needs to be substantially reformed to better reward and incentivise capacity availability and dispatchable generation; and

• Meanwhile, Australian electricity demand is increasing as sectors such as transportation are electrified, consumers move away from gas and new electricity-intensive users such as data centres rapidly emerge. The major parties have different views of the extent of this demand increase, with the Coalition’s modelling and policies assuming a materially lower level of electricity usage (and therefore new generation required to meet it).

The energy transition will not be cheap under either policy. During the energy debate on 12 April 2025, Energy Minister Chris Bowen and Coalition energy spokesperson Ted O’Brien faced off over which party would bring down power prices more. The reality is likely to be that electricity in Australia is going to become more expensive in the short term whichever party wins the Federal election - the key issue will be just how much more expensive. Cost discussions also need to consider the cost of getting it wrong – a failure to develop replacement generation in time, and of unreliable generation until we get there, will just contribute to even higher electricity prices.

Together these circumstances highlight how urgent the need is to implement a replacement generation mix for Australia and how important it will be for whichever party wins the election to get the policy settings right on energy policy over the next electoral cycle and to help clear the path to then developing that replacement generation (and new transmission). It will also be crucial that long-term policy certainty is created to encourage the private sector investment that will be required.

Labor policies

Labor’s policies assume renewables will make up approximately 94% of Australia’s generation mix by 2050, with the balance made up of firming capacity such as hydro, batteries and gas.

The Government has a number of existing policies and initiatives designed to support the development of a primarily renewable energy generation system. These policies and initiatives include the Capacity Investment Scheme to support the development of renewable generation and storage, the Rewiring the Nation Fund to support the development of transmission infrastructure and direct Government ownership and funding of projects such as Snowy 2.0 and Marinus Link. It has also progressed development of a regulatory regime for an offshore wind industry that was started under the prior Coalition government.

The Government also has several existing gas and carbon policies and reforms, including:

• tightening of the Australian Domestic Gas Security Mechanism in 2023, where the government has expanded powers to limit LNG exports or require exporters to find new gas sources, where there is a domestic gas shortfall. This mechanism has not yet been activated;

• the 2022 Gas Market Code, which has a price cap of $12 per gigajoule aimed at reducing gas prices for buyers including gas-fired power generators. However, most producers have exemptions with commitments to provide additional supply to the domestic market. The stringent procedural requirements under the Code have made it harder to contract for longer term gas supply, which has impacted marketing strategies and gas prices;

• tightening the existing Safeguard Mechanism (eg by lowering baselines) to ensure that covered facilities contribute to helping achieve Australia’s emission reduction targets; and

• introducing the Australian Government's Future Gas Strategy in 2024, which recognises the importance of gas in the energy transition. This policy outlines a comprehensive approach to managing gas supply and emissions reduction through 2050. However, it does not specify binding legislative measures or timelines, leaving some uncertainty regarding its implementation.

As part of its election campaign Labor has announced additional initiatives:

A $2 billion expansion of the CEFC – a $2 billion expansion of the CEFC which will direct funds into the upgrade of the electricity grid, energy efficient technologies, and greater industry capacity to support the green economy. This funding is designed to unlock $8 billion of additional investment in renewable energy technologies. It also includes a $36.9 million investment to enhance the use of existing grid infrastructure and a $10 million Accelerated Connections Fund to reduce grid connection bottlenecks.

$2.3 billion on household batteries – a $2.3 billion Cheaper Home Batteries Program, which aims to reduce the cost of installing home batteries by 30%, potentially saving households up to $1,100 annually on energy bills. The initiative targets increasing battery installations alongside existing rooftop solar systems, with projections of over one million new batteries by 2030. This program is designed to decrease reliance on the grid and provide households, small businesses, and community facilities with significant savings on energy costs.

$1.8 billion to extend energy bill relief – at the last election Labor declared it would reduce domestic power prices by $275 per customer, but power prices went up. It has attempted to compensate for this by providing consumers with temporary rebates against their power bills. Labor will extend energy bill relief until the end of 2025 for all households and around one million small businesses. This extension includes an additional $1.8 billion in payments on top of the nearly $5 billion already provided. In addition, Energy Efficiency Grants for Small and Medium Sized Enterprises program will provide $56.7 million in grants of up to $25,000 to over 2,400 businesses to fund a range of energy upgrades. 

Coalition policies

The Coalition’s policies assume renewables will make up 54% of Australia’s generation mix by 2050, with baseload nuclear providing 38% and the balance made up of firming capacity such as hydro, batteries and gas. Labor has described this as a “cap” on renewables of 54%, but that is not correct – it is the modelled outcome of the Coalition’s policies.

As part of its election campaign the Coalition has announced the following policies:

Nuclear – The Coalition plans to establish a baseload nuclear generation sector in Australia. The nuclear programme will consist of two phases, starting with two establishment projects in the mid-2030s (to start producing electricity by 2035 or 2037 depending on the size and type of reactor), followed by a buildout of projects through to 2050. The Coalition has identified seven locations where nuclear plants will be situated, on the sites of former or current coal-fired generation plants and with access to the existing transmission network. The sites are at Liddell (NSW), Mount Piper (NSW), Loy Yang (Vic), Tarong (Qld), Callide (Qld), Northern (SA) and Muja (WA). These plants would be developed, funded and owned by the Federal Government. Given these sites are predominantly privately owned, it is likely that negotiated or compulsory acquisitions will be required. At this stage there have been no discussions with the private owners of these sites.

The communities that host the nuclear plants will receive a benefits package including an integrated economic development zone and a regional deal unlocking further investment in modern infrastructure and community services.

As we explained in November, the development of a nuclear power industry by the mid-2030s, and in time to replace the existing coal-fired generation fleet, seems challenging for a range of reasons. Small modular reactor technology is still nascent, there is zero nuclear industry in Australia currently and nuclear power generation is banned at both the Federal and State levels. Obtaining social licence is also likely to be difficult. Importantly, nuclear projects notoriously experience lengthy construction delays and large cost blow outs. The CSIRO has estimated that it will take at least 15 years to develop a nuclear power plant in Australia.

To accommodate the development of nuclear power the Coalition proposes that the existing coal-fired generation fleet will need to operate longer, which does raise questions about plant reliability and the costs of life extensions (including underwriting arrangements with the owners of those plants).

Gas – The Coalition has announced a gas plan to ensure gas availability, including for  new electricity generation capacity. As outlined by Peter Dutton in his Budget In Reply, the plan includes: 

• an east coast gas reservation mandating 50 – 100 petajoules of gas currently exported to Asia as “spot” LNG to be reserved for supply to the Australian domestic market, increasing supply by 10 – 20%; and

• investment of $1 billion in a Critical Gas Infrastructure Fund.

The Coalition has made a pledge to add gas-fired generation to the Capacity Investment Scheme.

The Coalition has released modelling by Frontier Economics which estimates its gas plan alone will reduce retail gas bills by 15% for industrial customers and 7% for residential customers.
Renewables – the Coalition is much more circumspect on the development of renewable generation and proposes to cut back a number of Labor’s initiatives on renewable energy. It has said it will:

• slow the development of renewables generation and associated transmission infrastructure, and that renewables were likely to only make up approximately 54% of the generation capacity of the electricity grid in 2050;

• cover the gap created by slowing renewable energy construction by using more fossil fuel energy. It will extend the life of coal-fired power plants and use more gas power until it can build taxpayer-owned nuclear plants;

• scrap the Rewiring the Nation Fund to build transmission infrastructure; and

• scrap two of the 6 declared offshore wind regions (Southern and Hunter).

Cost comparisons

It is difficult to compare the forecast costs of each party’s energy policies as the assumptions underlying each differ materially and are challenged by the other. 

Labor’s policy follows the least cost generation technology mix supported by the Australian Energy Market Operator and the CSIRO.

Labor has campaigned on the basis that the Coalition’s development of nuclear generation will cost $600 billion by 2050. The Coalition claims that the capital and operating costs of nuclear generation will only be $331 billion, and that the total system costs of Labor’s predominantly renewables policy were likely to be $594 billion, a number that Labor in turn disputes. 

The Coalition’s modelling assumes that its policy will provide the cost benefit of not needing to develop significant additional transmission infrastructure or to “over build” the generation sector.

There is considerable uncertainty about exactly how much either policy will ultimately cost, especially if the modelling or implementation timing assumptions cannot be met. The more important assessment may be the level of confidence that can be had about whether either party will be able to actually achieve its policies in the timeframes required.

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1.   https://www.afr.com/companies/energy/winter-gas-threat-pushed-out-but-shortages-loom-20250317-p5lk3w