Part 1 - Unlocking energy investment at scale: contracts, infrastructure and market confidence

Transmission | Building the grid 14 min read

Australia's successful transition to a net-zero electricity system depends on the swift and coordinated buildout of the nation's transmission infrastructure. Yet, despite an ever-increasing number of renewable generators and storage systems vying for connection to the network—and billions in private and public capital earmarked for expansions and upgrades—network operators and investors continue to stare down a variety of challenges for timely and affordable delivery of transmission projects.

The Australian Energy Market Operator (AEMO) anticipates that close to 10,000km of new transmission is needed by 2050, with half of this infrastructure forecast to be built in the next decade.¹ Moreover, a significant proportion of Australia's network infrastructure is reaching the end of its functional life and will need to be upgraded to match the evolving needs of the modern grid.

In this Insight, we explore the need for transmission infrastructure and highlight the key challenges relevant to developers, investors, financiers, contractors and other stakeholders assessing such projects.

Key takeaways

• Governments at the federal and state levels have adopted strategies, roadmaps and frameworks to accelerate the investment in, and delivery of, infrastructure projects. As a result, stakeholders, including new entrants, have an unprecedented opportunity to be involved in transmission projects.
• The challenges encountered in delivering transmission projects span all areas. Being cognisant of these, and engaging trusted advisers early, can alleviate the burden of these challenges.

Overview of the transmission sector

Need for transmission infrastructure

A number of factors are driving the need for further investment in transmission infrastructure:

• Increased generation capacity: AEMO forecasts that the National Electricity Market (NEM) requires a six-fold increase in utility-scale renewable generation by 2050 to replace retiring coal capacity and meet increased electricity consumption.² To pose any benefit to consumers, this renewable generation capacity requires transmission infrastructure to connect to the system, albeit at a significant scale to alleviate any congestion inefficiencies.
• Evolving technology: some existing transmission networks are not compatible with the higher voltages generated by renewable energy assets. Investment in transmission infrastructure is required to optimise efficiency of the network and ensure compatibility with all energy sources.
• Ageing infrastructure: a significant portion of Australia's transmission infrastructure is around 50 years old and is reaching the end of its functional life. Investment is required to both upgrade existing and construct new transmission infrastructure to enhance efficiency, reliability and safety with a reduced risk of failures and outages.
• Interconnection: the reliance of renewable assets on specific weather conditions to generate energy may cause inconsistency in production across different geographic regions. Although the NEM is already the longest interconnected power system in the world, it and other networks must be well interconnected to take advantage of different weather conditions and reduce the risk of intermittency.

Powering forward

Federal and state governments have signalled their intentions to address the need for transmission infrastructure through various initiatives. The cornerstone of this support is the Federal Government's $19 billion 'Rewiring the Nation' program, which provides finance, through the Clean Energy Finance Corporation (CEFC), at concessional rates to minimise the costs of investments to deliver new and upgraded transmission infrastructure.

The CEFC has already pledged billions to assist with the development of various priority projects in each state and territory. Such transmission projects are being informed by reference to the various transmission-focused strategies, roadmaps and frameworks developed by each of the states. For example, Queensland has the Priority Transmission Investment Framework and NSW has the Network Infrastructure Strategy.

More recently, there have been two notable developments under the NSW and Victorian regimes. 

New South Wales: Transmission Planning Review 2025

In October 2025, the NSW Government released the Final Report of the NSW Transmission Planning Review (Final Report). The review considered transmission planning arrangements in NSW and presented recommendations to reduce duplication and ensure coordination between TransGrid, EnergyCo, AEMO and AEMO Services.

The Final Report contains 15 recommendations, organised into three themes, which are summarised in the table below.³

In its response to the Final Report, the NSW Government accepted all the recommendations. Following the review, the NSW Government introduced and passed the Energy Legislation Amendment Act 2025 (NSW), which addresses the following actions that were identified for immediate implementation:

• streamlining REZ network infrastructure project authorisations
• strengthening regulation of network-to-network connections
• clarifying accountabilities for system strength planning in REZs and improving coordination.

The NSW Government has accepted the rest of the recommendations regarding transmission planning but has not yet implemented them. It has accepted the recommendations regarding transmission planning reports and transmission planning decisions 'in principle', reserving its position as to the scope and timing of the reforms.

Victoria: 2025 Victorian Transmission Plan

In August 2025, VicGrid published the Victorian Transmission Plan (VTP) as part of the Victorian Transmission Investment Framework, which was released in July 2023. The VTP outlines a coordinated approach to developing energy generation and transmission infrastructure to meet Victoria's needs over the next 15 years.

The VTP focuses on three main areas:

• six proposed REZs, which will host new renewable energy generation once the zones are declared;
• a proposed separate Gippsland Shoreline REZ, which is designed to allow efficient connection of offshore wind farms to the grid; and
• proposed transmission network upgrades, including augmentations and reconstruction of existing transmission infrastructure, and four new transmission projects.

The proposed network upgrades include seven transmission investment programs to be delivered over the next 15 years. The four new projects will take place between 2028 and 2030 in South Morang, Deer Park, Cranbourne and on the Ballarat to Moorabool line. The three other programs build on projects that are already under development or in construction.

The Minister for Energy and Resources has released draft REZ orders for the six proposed REZs, and separately for the Gippsland Shoreline REZ. Landholders, industry and others had an opportunity to provide feedback (which closed on 22 February 2026) before the zones are formally declared.

VicGrid will publish an updated VTP in 2027 and every four years after, or more often if required.

More information on the impacts of the VTP can be found in our previous Insight, Impacts of the final 2025 Victorian Transmission Plan.

As alluded to above, some of the state transmission instruments are focused on network infrastructure investment to connect to REZs. Almost every state has announced initiatives to promote the development of REZs, which reflects the urgency to deliver renewable energy. REZs provide a means of coordinating and co-locating the construction of new generation and transmission infrastructure to deliver low-cost renewable energy to industry, business and household consumers. As these REZs are designed and implemented, it is crucial for stakeholders to understand the opportunities they have to engage (through consultation), and to participate in the resulting network infrastructure.

What challenges are emerging?

Australia's transmission targets are substantial and ambitious. There have already been significant delays to several key transmission projects, with schedules being pushed back by up to five years. Being cognisant of, and addressing, the challenges set out below is critical for the successful and timely delivery of transmission projects.

Delivery models

Various funding models are being used for the delivery of large-scale contestable transmission projects. These models include the following:

• Regulated model: under the regulated asset model, the maximum revenue which operators delivering and owning network assets can recover from their customers is capped by the Australian Energy Regulator.⁴ The maximum allowable revenue is reviewed periodically⁵ and depends on factors such as the value of the operator's network assets, their operating costs and what the regulator determines to be an appropriate rate of return on investment.⁶
• PPP model: a public-private partnership (PPP) can take many forms but essentially involves private operators contracting with the government to deliver and operate network assets in return for payments either from customer revenue or taxpayer contributions over the horizon of the contract.⁷ This approach differs from the regulated asset model primarily in that the revenue of the network operator under the PPP model is determined according to the underlying contract, whereas revenue under the regulated asset model can change in accordance with the cap determined by the regulator.⁸
• Hybrid model: the regulated asset model and PPP model can be combined in bespoke ways to create a hybrid funding model. The CWO REZ model is one such example. The EII Act requires the regulator to determine the amount payable to a network operator by applying a 'Transmission Efficiency Test' to calculate the prudent, efficient and reasonable capital costs of network infrastructure projects. EnergyCo has indicated it is open to considering alternative cost recovery methodologies for future NSW REZs. This differing approach is reflected in the models proposed in other jurisdictions in the NEM and reflects an evolving model balancing return on investment with a reasonable risk allocation.

Proponents are not settled on the approach to delivery. For future projects, it is likely the network operator will be open to suggestions as to how the project will be funded and delivered.

Financing and private capital

The required investment in transmission infrastructure will come at a significant cost. Transmission projects will amount to $16 billion of the total $122 billion required to fulfil AEMO's optimal development path.⁹ This capital will be provided by large bank syndicates, government funding (including through the CEFC and Rewiring the Nation) and private capital sources.

Lenders require transmission projects to have a 'bankable' structure. In other words, the lender is satisfied that the project company has an acceptable level of risk under the relevant project agreements. Key bankability issues include:

• revenue: whether the borrower has access to reliable and secure revenue for debt repayment (eg in the case of Central-West Orana REZ, via the Scheme Financial Vehicle and EnergyCo).
• risk allocation: the extent to which project risks are passed through to reliable subcontractors or mitigated through insurance or contingency reserves.
• contracts and authorisations: ensuring access to necessary assets, authorisations and contracts for construction and operation.
• security structure: a lenders’ ability to take effective security over project assets and have opportunities to cure breaches by the operator.

When considering debt financing, developers should ensure that any structure is flexible enough to accommodate future growth, including through augmentation (such as new greenfield expansion).

Procurement

Given the inherent complexity in large-scale linear infrastructure projects, involving contractors early in the design and approvals stage of a transmission infrastructure project can facilitate a smoother process overall.

with demand for energy infrastructure projects in recent years surpassing supply, Australia has trended towards a contractor-friendly market  

However, procuring an appropriate contractor may be difficult as Australia has a limited pool of civil contractors with experience on transmission projects. We have already seen skilled labour shortages confront network operators. Where a contractor is involved early, the parties may consider using re-pricing mechanisms to reallocate the risk and cost of a project as more accurate information becomes available to both principal and contractor alike. Principals must be conscious, however, that with demand for energy infrastructure projects in recent years surpassing supply, Australia has trended towards a contractor-friendly market.

Other challenges in procurement, including ongoing supply chain issues and hyper-escalation of core commodities, have created a push towards further innovative contractual arrangements, with amendments to traditional collaborative and risk-sharing regimes. Novel two-phased procurement models have recently been adopted by transmission planning authorities such as VicGrid and EnergyCo. Under this model, there is an initial development phase which is focused on facilitating thorough front-end engineering, design risk and opportunity assessment to allow proponents to better understand, allocate and price key risks prior to contractual and financial close of the delivery and operation and maintenance phases. The right model for a transmission project will need to be determined early, balancing risk allocation and consideration of unforeseen risks with the central value for money proposition of the transaction.

Delivery

The smooth and successful delivery of a project will depend on the attention given to fundamental considerations such as the claims management process. While claims are an inevitable part of large-scale projects, excessively onerous claims procedures can stall the development of projects and shift focus from performance of the works to contract administration. It is critical to agree to a clear and streamlined claims management process where both principal and contractor can quickly and fairly resolve claims without distracting from the project timetable.

Moreover, volatility in the price of building materials such as steel and aluminium, combined with intense competition for procurement of long-lead items like transformers, can increase the risk in dealing with cost overruns on a project. Ensuring there is adequate cash flow and rise and fall mechanisms in the underlying project documents is critical to ensuring the project can continue to progress on its planned timetable.

Regulation

The regulation of transmission networks is broad and complex. Transmission networks are governed by the National Electricity Law and the National Electricity Rules, both of which are modified or disapplied on a bespoke jurisdictional framework. For example, REZ frameworks are administered differently by EnergyCo in NSW and VicGrid in Victoria. Considering the National Electricity Rules contain some 12,000 obligations (along with associated guidelines), this creates a particularly complex regime for cross-border transmission projects.

Between November 2023 and September 2024, the Australian Energy Market Commission approved and implemented a suite of new rules as part of the Transmission Planning and Investment Review, including in relation to enhancing community engagement, concessional finance and early works. Stakeholders must know how to navigate the myriad of legislation and keep informed of any changes to avoid penalty.

Environment and planning

The imposing nature of transmission lines can result in significant biodiversity offset liabilities. The growing emphasis on ‘nature-positive’ outcomes means it is important for proponents to have a well-thought out 'avoidance and minimisation' narrative and offset strategy. It is generally ameliorable to procure ‘like for like’ credits as, failing this, projects may need to instead contribute to biodiversity conservation funds, which can be a much more expensive option.

Additionally, transmission projects require engagement with many First Nations groups. Since the destruction of Juukan Gorge, there is heightened sensitivity around cultural heritage impacts, and there is an increasing pressure on proponents to obtain prior and informed consent of traditional owners. Identifying who has authority to speak for country for a corridor that spans hundreds of kilometres can be particularly difficult. Modelling results from the Net Zero Australia study found that 43% of an area of 51,600 km² of new renewable energy and transmission infrastructure would need to be sited on the indigenous estate for Australia in order to achieve net zero emissions by 2060.¹⁰ Early and genuine engagement with First Nations peoples, including regarding intangible heritage values, is vital to managing both legal and reputational risk.

Land and property

Transmission lines require different acquisition and access interests throughout the project lifespan. Large amounts of land are required for initial access and construction, whereas operational phase interests are longer but affect less of the land involved. Extension rights can be critical to ensure there is enough flexibility in the timetable and secured arrangements are not put at risk.

Large transmission lines traverse many hundreds of kilometres and encounter numerous types of complex landholdings and ownerships, including Crown land, national parks, state forests, western land leases, mining leases and option interests. Obtaining advice to appropriately manage these diverse landholdings is critical to ensuring suitable arrangements.

Proponents should plan for multiple acquisition scenarios, depending on the responses of landowners. Upfront property due diligence should be performed to provide timely and relevant advice on the most effective pathways for the various interests in land to be secured and to identify any issues with compulsory acquisition.

Beyond the legal and regulatory licenses, a key consideration for transmission projects is obtaining a social license to build and operate. Transmission projects must obtain support and buy-in from the local community, by engaging at an early stage, to assist with property acquisition and avoid planning objections. This can be challenging given the need to engage with many landowners and communities with diverse interests. Objector groups have demonstrated an increasing appetite to pursue judicial review proceedings challenging planning and environmental approvals for major projects. Insufficient consultation and inadequate assessment of cultural heritage impacts and offsite impacts have been issues of focus in some recent challenges. Robust environmental assessment and consultation processes can reduce the risk of a successful challenge being brought. 

Actions you can take now

If you are involved in a transmission project, or contemplating entering the market—either as a developer, investor, contractor or financier—it is important to consider the following:

• monitor for opportunities: by keeping your finger on the pulse, you will encounter plentiful opportunities for involvement in transmission projects.
• early engagement: engage early with all relevant parties, including local government, the community, traditional owners, landholders, consent authorities, regulators, contractors, geotechnical experts, financiers and government programs. The work done early in the project, and through concept and procurement processes, is crucial to the success of your transmission project. For participants entering from overseas markets, there can be value in having an early 'on the ground' presence to ensure that concept and procurement processes have the benefit of local market knowledge and experience.