Executive summary
Residential electrification is an increasingly important feature of Australia’s energy system. Electrification has the potential to improve household energy efficiency, reduce emissions from residential energy use and lower energy costs for consumers. It remains costly, acting as a barrier to entry for most Australians, with a very long return on investment period.
A key concern is the cost-of-living crisis Australia finds itself within, which has been articulated as ‘Australia’s worst ever hidden recession’, and ‘the recession you have when you’re not having a recession’. The International Monetary Fund released its updated World Economic Outlook in October 2024, with Australia’s inflation expected to continue rising into 2025.Energy efficiency is an inappropriate standalone measure. Households and governments should be focused on the delivered cost of energy.
In general, residential electrification describes the replacement of household appliances powered by fossil fuels with energy efficient electric appliances, such asinduction cooktops, electric water heaters and reverse cycle air conditioners. Often, residential electrification is combined with the installation of so-called consumer energy resources (CERs) which allow households to generate and store clean energy, such as rooftop solar and battery energy storage.
Australians are increasingly electrifying their homes. For instance, over four million rooftop solar systems are installed on Australians’ homes—with a total generation capacity of almost 25 GW, exceeding that of Australia’s coal-fired power stations.
Yet, despite the significant opportunities attributed to residential electrification, the committee heard that many Australians face barriers to electrifying their homes. Indeed, inquiry participants’ evidence suggests there is considerable value in governments of all levels working to coordinate Australia’s electrification transition.
Australia can benefit from increased electrification
Residential electrification technologies available today are a valuable tool for reducing emissions and improving the reliability of Australia’s energy system.
The energy efficiency benefits of electrification are particularly significant in Australia given the large amount of energy used in households. Residential buildings use around a quarter of all electricity in Australia and account for 10 per cent of emissions. Gas is also used extensively, with around 30 per cent of energy used in the residential sector coming from gas in 2022–23.Currently, over five million households are connected to gas and use some 13 million gas appliances.
In some cases, the committee heard that heat pump technologies for space and water heating can be several times more efficient than their gas-powered counterparts.
Evidence from inquiry participants also highlighted several other opportunities associated with residential electrification. For instance, the committee heard that the efficiency of electric appliances can result in reduced household energy costs and offset energy price inflation. Further, the manufacture and installation of residential electrification technologies is anticipated to create thousands of new jobs.
Many Australians face barriers to electrifying their homes
Notwithstanding these opportunities, electrifying households on a national level is a challenging task and many Australians face barriers to electrifying their homes.
For instance, while installing energy efficient electric appliances can reduce a households’ energy costs, the upfront costs of purchasing and installing those appliances remains prohibitive for many people. Indeed, the committee heard that replacing gas appliances for heating and cooking with electric equivalents costs, on average, upwards of several thousand dollars per household.
Moreover, the upfront costs of electrifying a household are exacerbated by any wiring upgrades needed to support the additional demand of electric appliances and by any fees that apply for a property to be disconnected from the gas network. Costs can rise even further for households seeking to instal CERs. For instance, installation of a battery energy storage system with an average capacity of between 8–10 KW can cost between $8000 to $13 000.
Despite many government programmes encouraging residential electrification, the committee heard that further—and better targeted—financial supports are needed to help Australians electrify their homes. In particular, many inquiry participants submitted that, without improved supports, Australians on lower incomes risk being left behind in the electrification transition.
The committee also heard that well-considered policies are needed to ensure Australians who rent, or who live in apartments or strata properties, can access the benefits of electrification. For instance, landlords are not currently incentivised to electrify their investment properties given that the energy cost savings primarily benefit the tenant. Additionally, apartment and strata property owners face unique challenges in electrification upgrades that involve common property interests.
More broadly, inquiry participants gave evidence that a lack of centralised information on residential electrification means that many consumers are not aware of the options available to electrify their homes.
Other macro-barriers to electrification in Australia
Inquiry participants also stressed the need for building standards to be factored into residential electrification programmes. For instance, for residential electrification to be effective, many inquiry participants considered that electrification must be pursued alongside improvements to the thermal efficiency of Australian homes.
Australian homes are often poorly insulated. Recent analysis suggests that a typical Australian home built prior to 2010 had a median energy star rating of only 2.8, compared to a median rating of 5.9 for homes built after 2010. Indeed, the benefits of electrification in improving household energy efficiency and reducing emissions risk being offset if a dwelling has poor thermal efficiency.
Furthermore, the quality of electric appliances installed needs to be prioritised. The committee heard that, in some instances, appliance subsidies encouraged the installation of low-cost appliances which were not suited to the household’s intended use or had a poor energy efficiency rating. Given the typically long lifespan of household appliances, small differences in energy efficiency can have a significant cumulative impact on appliances’ emission and energy cost reduction benefits.
Alongside consumers, electricians and installers will be at the forefront of Australia’s residential electrification transition. However, there is currently a nationwide shortage of electricians, which is likely to worsen in the coming years. Indeed, the committee heard that to meet the current electrical work plus the additional pipeline of work in the renewable energy sector, Australia will need an additional 35000 qualified electricians by 2030. Given that just over half of trainee electricians finish their apprenticeship, training of some 70 000 electrical apprentices will need to commence over the next five years.
Importantly, electrification will also have significant implications for Australia’s energy grid. Significant distribution and wiring upgrades are needed to support the increase in renewables in the grid, including the significant generation capacity of rooftop solar. At the same time, Australia’s demand for electricity is anticipated to increase. To continue to meet demand, it is estimated that the supply capacity of the National Electricity Market—which delivers 80 per cent of Australia’s electricity—will need to almost triple by 2050.[12]
Better national coordination needed
As considered in the committee’s report, the mix of opportunities and barriers associated with residential electrification in Australia show that there could be a role for governments to adopt policies that support and coordinate Australia’s transition to residential electrification.
At the national level, effective policies will make it easier for Australians to electrify their property and provide certainty for those making considerable investments to support Australia’s decarbonisation efforts. Implemented well, such policies will improve the quality of Australia’s electrification transition and compound the benefits experienced by Australians.