Australia is deep into an ambitious energy transition but progress is proving slower and more complicated than early plans suggested. Construction costs are climbing, grid stability is under pressure, and communities, investors and voters differ on how fast and how far the shift should go. At the same time, huge new electricity loads from AI and data centres are emerging, which is turning reliable, affordable power into a key competitive battleground for the digital economy.
Right now, Australia is unusual in planning to phase out coal almost entirely and rely overwhelmingly on geographically scattered wind and solar backed by big batteries, pumped hydro and long transmission lines. Other advanced economies with very high renewable penetration still lean on roughly one fifth of their supply from stable, always on sources such as gas, hydro or imported nuclear power. Australia cannot import steady power from neighbours so its own mix must carry the full load, yet it has no clear replacement baseload strategy beyond extending coal plants longer than expected.
The options for firm, continuous generation include nuclear, large scale hydro, coal and gas, with some early stage work on so called “baseload solar” that combines solar with long duration storage. Globally, nuclear is making a comeback, hydro remains limited by geography, coal is being pushed out by policy and gas is widely used as a flexible bridge fuel. From a grid engineering perspective, dependable baseload helps keep prices lower over time, stabilises frequency and voltage and provides critical inertia that intermittent renewables and batteries alone struggle to match.
If Australia continues to aim for a near fully intermittent system without enough firm support, it looks likely to face higher capital requirements, more overbuilt renewable capacity and increased spending on storage and transmission just to keep the lights on. That could flow through to households and industry as higher bills and inflationary pressure and may erode political backing for decarbonisation. On the other hand, making room for a modest share of cleaner baseload seems to offer a path to smoother transitions, fewer shocks and a stronger platform for power hungry sectors such as AI, cloud computing and advanced manufacturing.
One immediate step would be to lean into Australia’s substantial gas reserves as a transitional backbone. The domestic gas sector is mature, well funded and able to develop new projects quickly if policy settings are stable and approvals are streamlined. Gas fired generation produces significantly less carbon than coal, can ramp up and down to complement variable renewables and can be rolled out without large new taxpayer subsidies if regulatory risk is brought under control.
Alongside this, Australia could build a modern legal and regulatory framework for small modular nuclear reactors (SMRs) even if first projects are still years away. Other countries with similar legal and social landscapes such as Canada’s Ontario region are already moving ahead with grid connected SMR projects in the 300 megawatt range that are designed to scale up to more than 1 gigawatt and operate for around 50 years. These projects are structured so taxpayers fund early development but can later sell operating assets to the private sector, which combines long term energy security with eventual capital recycling back to the public purse.
As global experience accumulates, SMRs appear likely to become a serious option for both urban grids and remote industrial sites needing zero carbon 24/7 power. If Australia waits to create rules and approvals processes until after the technology is fully proven overseas, it risks being a late adopter and missing opportunities to attract international manufacturers, investors and high value industries that need dependable clean electricity. Getting the legal groundwork in place now looks like a relatively low cost way to stay in the game.
Putting gas and potential SMRs into the mix does not replace renewables, it reinforces them. A diversified system with strong wind and solar supported by cleaner baseload seems to promise more reliable, more flexible and ultimately cheaper decarbonisation than a strategy that relies almost entirely on intermittent generation and very large storage. For AI data centres and other energy intensive digital infrastructure, that kind of stable, competitively priced power supply could be the difference between building in Australia or going elsewhere.
In practical terms, evolving the current strategy means updating gas project rules to encourage timely development, clarifying the role of gas fired power in the transition and designing a transparent approvals and safety framework for SMRs that includes local community engagement from the start. None of this guarantees smooth sailing but it does look like a more resilient approach than hoping a uniquely intermittent system can deliver both deep emissions cuts and world class energy reliability on its own.
