Victoria's energy transition: unlocking investment in Renewable Energy Zones

Watch: What will unlock investment in Victoria's energy transition?

Geoff Petersen and Zac Kerr join Jamie Guthrie to discuss Victoria's Renewable Energy Zones, the evolving grid access regime and what government, developers and investors need to get right to support the next phase of infrastructure development.

Victoria is at an important juncture in the development of its energy system. With a state election approaching, the focus is shifting towards what the next four years must deliver to unlock the infrastructure and private investment required for the energy transition.

Recent regulatory reforms, the declaration of Renewable Energy Zones (REZs) and the development of a new grid access regime have provided greater clarity about Victoria's direction. However, translating that progress into investment and project delivery will require confidence in the regulatory framework, clear infrastructure priorities and effective coordination between government and the private sector.

The challenge is not simply determining where infrastructure is needed, but establishing a sufficiently clear, durable and investable framework that enables projects to proceed while allowing markets, capital and technology to evolve.

Key takeaways

1. Victoria has a clearer roadmap, but investor confidence remains critical: regulatory reforms and REZ declarations have provided greater visibility over infrastructure priorities, but developers and investors need confidence that planned projects will progress.
2. Government coordination is essential to unlocking private capital: greater government involvement in planning, transmission and grid access can facilitate investment, but stable regulatory settings are needed to allow the private sector to allocate capital and deliver projects.
3. Regulatory stability, risk allocation and project sequencing will shape investment decisions: investors need clear and durable rules, appropriate recognition of risk and visibility over which infrastructure projects will proceed and when.
4. Grid access and community engagement are critical to project delivery: transparent access arrangements, a clear transition to the new regime and meaningful community participation will be essential to progressing Victoria's energy infrastructure.

Victoria's REZ framework is progressing, but confidence remains key

Victoria has made significant progress in establishing the regulatory framework for its Renewable Energy Zones. Recent reforms have introduced new powers for government and VicGrid to establish REZs and determine the infrastructure required to support their development.

The declaration of five onshore REZs and the Gippsland offshore REZ represents an important step towards providing investors with greater clarity about where future network, generation and storage investment will be directed.

These developments have helped establish a clearer roadmap for Victoria's energy transition. However, while developers and investors now have greater visibility over the intended pathway, confidence in its delivery remains a challenge.

For private capital, the distinction between visibility and confidence is important. Investors may understand where future opportunities lie but remain reluctant to commit capital until there is sufficient conviction that the proposed infrastructure and regulatory arrangements will be implemented.

Victoria's next phase will therefore be critical in demonstrating that regulatory progress can translate into investment and project delivery.

The investment paradox: greater government involvement to unlock private capital

Australia's National Electricity Market has traditionally relied on private capital responding to market signals within an established regulatory framework.

However, the scale and complexity of investment required for the energy transition has increased the need for government coordination.

Governments are taking a more active role in identifying priority investment areas, planning transmission infrastructure and establishing the regulatory settings needed to facilitate development. This approach is already evident in New South Wales through its electricity infrastructure roadmap and is increasingly reflected in Victoria's REZ framework.

The challenge is determining where government involvement should begin and end.

Government has an important role in establishing the frameworks, access arrangements and infrastructure priorities that enable investment. However, once those settings are in place, private capital and delivery partners need sufficient confidence to make investment decisions within them.

Frequent adjustments to regulatory settings or economic incentives can undermine that confidence, even where changes are intended to improve the framework.

For Victoria, the opportunity lies in establishing a durable investment environment that enables private capital to respond to market opportunities without ongoing uncertainty about the rules.

What will unlock private investment?

For sophisticated infrastructure investors, complete certainty is not necessarily a prerequisite for investment. What matters is confidence that the regulatory framework underpinning an investment will remain sufficiently stable over time.

Private capital is accustomed to assessing and pricing risk. However, investors need confidence that the rules and economic settings on which their investment decisions are based will not be materially undermined by future regulatory intervention.

This is particularly important for long-term energy infrastructure projects, where investment returns may be realised over many years.

An effective framework must therefore provide clarity about how risks are allocated between government and the private sector, ensuring that responsibility rests with the parties best placed to manage those risks.

The regulatory regime must also appropriately recognise and reward risks assumed by private investors, including through properly calibrated rates of return.

Ultimately, attracting capital is not simply about removing risk. It is about creating an environment in which risks can be understood, allocated and priced with confidence.

Prioritisation and sequencing: turning plans into projects

The scale of Victoria's energy transition means that choices will need to be made about which infrastructure projects proceed first, which can follow and how investment should be coordinated.

Clear prioritisation and sequencing are important components of investor confidence. Developers and financiers need visibility not only over what infrastructure is proposed, but also over when it is likely to be delivered.

New South Wales provides a useful comparison. Its roadmap framework has identified priority investment zones while recognising that individual REZs face different development challenges and timelines.

For Victoria, a similarly clear approach to prioritisation could help direct investment towards projects that are ready to progress while maintaining momentum across the broader infrastructure pipeline.

Victoria's fiscal constraints make this discipline particularly important. A clear and investable framework for private capital can help ensure that limited public resources are directed towards enabling infrastructure development.

Delivering projects already under construction or well advanced, while demonstrating meaningful progress on the next wave of infrastructure, would also help reinforce market confidence.

Visible progress can provide investors with evidence that the framework is working, encouraging further capital deployment and project development.

Victoria's new grid access regime: transparency will be critical

Victoria's transition from an open access framework towards a more coordinated grid access regime represents a significant change in how renewable energy projects will connect to the electricity network.

Historically, network service providers have managed connection applications under an open access model. However, increasing demand for connections has placed greater pressure on that process, creating challenges for project development and investment certainty.

The new regime is intended to provide greater coordination over where projects connect, how access rights are allocated and the infrastructure required to support development.

While this approach may improve longer-term investor confidence, the transition itself introduces uncertainty that must be carefully managed.

Transparency around the criteria for granting access rights will be essential, particularly to ensure that developers of different sizes can understand and assess their opportunities.

Clear transition arrangements will also be important for projects already progressing through the connection process.

With the new regime expected to commence in 2027, developers and investors will need early visibility over how existing applications will be treated and how the new arrangements will operate.

Providing clear, reliable information before implementation will help ensure that investment decisions can continue to be made with confidence during the transition.

Community engagement and social licence are fundamental to delivery

Community engagement has become an increasingly significant consideration for renewable energy and transmission infrastructure projects.

While a project may be commercially viable and supported by a clear regulatory framework, securing community support can present substantial challenges to its delivery.

Experience from re99cent projects highlights the importance of engaging communities early and maintaining that engagement throughout development. Once community sentiment turns against a project, rebuilding trust can be difficult.

Government has an important role in establishing broader community understanding and support for infrastructure development, particularly before individual projects reach the delivery stage.

Network operators and developers also need to demonstrate how projects will benefit the communities in which they are located.

These benefits will differ between projects and regions. They may include employment opportunities, community investment funds or other initiatives that respond to locally identified priorities.

Historically, major energy and industrial developments have often delivered visible employment and economic benefits to surrounding communities. For new renewable energy infrastructure, those benefits may not always be as immediately apparent.

Demonstrating tangible local value will therefore be an important part of building the social licence required to support Victoria's next phase of infrastructure development.