Spotlight on Australia - May 2026

The German economy stalled when the Ukraine war pushed up its electricity prices. Similarly, many economies are sputtering with the impact of the Iran war.

Australia experienced higher gas prices at the start of the Ukraine war and many industries are suffering from higher diesel prices. However, a recent ruling by the Australian Energy Regulator (AER) has cut the default cost of electricity by up to 10.7% for households and up to 20.9% for small businesses in participating states. Could Australia be on the verge of an energy revolution that could power its economy and help establish it as a regional data centre hub?

“... energy abundance might be the single most important technological bottleneck of our time.” Ezra Klein and Derek Thompson, Abundance, 2025.

Australia is leading the way in cheap electricity

Not only is Australian electricity prices falling, but they are now among the cheapest in the developed world, according to the IEA (see chart below).

This will provide Australia a competitive advantage in existing and more importantly, new industries such as power-hungry data centres, green hydrogen, and green metals.

In many areas around the world, the growth in data centres is actually pushing up wholesale electricity prices.

The coal empire

At 14%, Australia has the third-largest coal reserves in the world. So it is unsurprising that coal has been the dominant source of electricity since Australia went electric (see the chart below).

Source: CSIRO

Cheap access to coal also allowed Australia to develop a steel industry and an aluminum industry.

“Coal is the foundation of the way we live because you can’t have a modern lifestyle without energy; you can’t have a modern economy without energy.” Tony Abbott, Australian prime minister, 2013-2015, comments made in 2015.

The rise of renewables

The dominance of coal is, however, slipping. Over the last decade, wind and solar power have grown considerably (see chart below). 

Source: energy.gov.au

And over the next decade, as renewables continue to grow and more coal-fired power stations are decommissioned, renewables will overtake coal as the major source of electricity in Australia - this trend can be seen in the chart below.

The key reason for the rise of renewables and the decline of coal is that wind and solar technology have matured and production has scaled, which has pushed down their unit costs. Electricity from solar and on-shore wind is now cheaper than from coal (see chart below).

Amazingly, with its glorious sunshine, the Australian states of Victoria and South Australia now lead the world in the instances of negative electricity prices (see chart below). This occurs when solar panels generate electricity in excess of demand in the middle of the day.

Australia’s commitment to net-zero by 2050, including a target of 82% of electricity from renewables by 2030, has also driven the adoption of renewables in Australia.

The battery revolution

In cutting the default market price, the AER cited the increased output generation from batteries (battery energy storage systems).

“The reductions compared to last year reflect easing costs across most components of the DMO [Default Market Offer], particularly in wholesale energy, where we’ve seen lower electricity contract prices, reduced spot price volatility, and increased output from wind and battery generation during evening peaks.” Australian Energy Regulator, news release, 26 May 2026.

In April, the Australian Energy Market Operator (AEMO) stated that batteries set prices in around 32% of trading intervals, more than any other energy source. It even “reduced the reliance on gas and hydro in evening peaks”.

As of April, grid-scale batteries provided 7,166 MW of generation capacity, or 9.5% of ‌Australia’s total generation capacity. If all publicly announced and committed projects are realised, this would increase generation capacity from grid-scale batteries to a huge 169,806 MW (see chart below). Batteries would then be the largest source of generation capacity. Imagine the impact this could have on prices! Australia is on the verge of an energy revolution.

In July 2025, the government introduced a 30% of rebate for home batteries, and so far over 415,000 have been installed. Prior to the scheme, Australia only had around 271,508 total household batteries. Assuming a 5 kW generation capacity (this is the continuous discharge of a Tesla Powerwall) the 415,000 new batteries provide around an extra 2,075 MW in generation capacity.

Over 30% or 4 million Australian homes have rooftop solar. This means there are over 3 million homes with rooftop solar who haven’t yet installed a battery. An extra 3 million batteries would represent an extra generation capacity of around 15,000 MW, which is similar to the current generation capacity of coal.

“Australia is a solar nation – we've got more solar on our roofs than pools in our backyards, and we want to match that success with home batteries to cut bills for everyone, for good.” Chris Bowen, minister for Climate Change and Energy.

The snowy super-battery

The cherry on top of the battery cake is the pumped-hydro Snowy 2.0 battery.

The much maligned scheme is years and billions over budget, but when it hopefully comes online in 2028, it will increase Australia’s pumped-storage and grid-battery storage capacity by a factor of five and will have a generation capacity of 2,200 MW. 

Final thoughts

The future is no longer nuclear, although Australia could compete there too; rather, the future is the dynamic duo of renewable energy and battery storage. Australia, “the land hidden in the summer for a million years”, is about to leap light years’ ahead in terms of lower electricity prices. If used wisely, this should translate into a competitive advantage in data centres and several other energy-intensive industries.