How much will it cost to electrify Australia’s built environment?

In late October, renewable energy generation hit a new record, briefly contributing more than two-thirds of the power in Australia’s main grid.

This milestone is just one of many on the road to net zero – and it also sends a clear signal to Australia’s built environment leaders. As the energy grid decarbonises, it makes sense for building owners to sharpen their focus on the next biggest source of emissions: gas used for heating, hot water and cooking.

Australia’s buildings are responsible for 23% of our emissions footprint. The International Energy Agency has outlined 400 steps to get to net zero by 2050, including global “bans on new fossil fuel boilers” from 2025.

Fast forward to an all-electric future

Governments are starting to take action. The ACT Government, for instance, has banned all new natural gas connections for homes and businesses from 2023 and is offering homeowners interest-free loans for hot water heat pumps and induction cooktops. The Victorian Government has launched a gas substitution roadmap and is offering incentives to switch to efficient electric appliances. All electric buildings are on the table as part of the NSW Sustainable Building SEPP and the Committee for Sydney has called for “no new gas connections from 2025 and no new gas appliances by 2030”.

Large property companies – Mirvac, The GPT Group, Lendlease, Frasers Property Australia and Cbus Properties among them – are phasing out gas and a new wave of all-electric building projects are in design and construction across Australia.

Meanwhile, rating systems like Green Star and NABERS are encouraging the market to move towards electrification. Altus Group is currently providing full cost management services on Central Place Sydney, which is pursuing 100% electrification and net zero operations. Frasers Property Australia is targeting a world-leading 6 Star Green Star Buildings rating – and to achieve that it must be fossil fuel free. The GBCA is ramping up its requirements over the next few years. Every 5 Star Green Star project that registers from 1 January 2023 must be 100% electric, and every 4 Star after 2026. But the task is titanic. The City of Melbourne, for instance, is proposing reduced rate charges for high-performing energy efficient commercial buildings, as well as an enforced emissions cap, to help meet its net zero target by 2040. Meeting this citywide target will require electrification of 77 commercial buildings each year – an 11-fold increase on the current seven.

Electrifying the residential sector is even more daunting. Around half of Australia’s homes – more than five million in total – are connected to the gas network. Even a 10-year transition program will require more than 9,500 homes to be electrified every week.

Counting the costs of the energy transition

“Absolutely, electrification must happen,” says Niall McSweeney. “But we must also recognise that there are costs associated with the transition – and those upfront costs can become yet another inflationary pressure.”

The National Skills Commission says technicians and trade workers are in the shortest supply of any job type – with 42% of assessed occupations in shortage. “These are the same people we’ll need to electrify our buildings. This pressure on labour will put pressure on costs,” Niall notes.

Moving away from gas comes at a capital cost. “One Altus Group client, a shopping centre owner, has recently replaced a gas-fired absorption chiller with an electric alternative. When the technology was installed 12 years ago, it was the most environmentally-friendly option on the market. The client has now written off equipment that was only halfway through its effective life.

"In the residential arena, gas hot water stoves have a life of between eight and 12 years, and stoves and ovens for up to 15 years. It will take juicy incentives to encourage homeowners who have recently invested in new gas appliances to make the switch.”

How governments can drive electrification at speed and scale

Governments play an important role not only as regulators, but as market leaders, Niall says. But problematic policies in the past have made governments wary of energy efficiency programs.

“The failure of the Rudd Government’s home insulation scheme left us with a situation where our existing residential stock is severely under-insulated from temperature changes, and therefore under-insulated from rising energy costs. It also made it much harder for the federal government to introduce large-scale energy efficiency programs.”

But governments, as the country’s largest office occupiers, can send a clear message to the market by demanding electric buildings in new leases, Niall notes.

“Governments must also consider what incentives can be offered to owners when they accelerate their electrification efforts. This may be an increase in the depreciation rate or write off value, for example.

“Electrification is a necessary part of any net zero aspiration. But turning that aspiration into action comes at a cost – and it’s important that we acknowledge this cost.”