The two things Australia should do to meet its future energy needs

Australia must embrace gas and signal support for nuclear to meet the high-energy demands of the ai age. by alexander danne.

First published in the Australian Financial Review

Despite some recent successes, Australia’s energy transition will take longer than originally anticipated.

Increased construction costs, technical instability in our grid, differing appetite for change, and diverse stakeholder and voter views all present challenges to Australia’s unique ambition of effectively being the only jurisdiction in the world to seek a fully intermittent renewable generation grid.

Responding effectively to those challenges is essential not only to Australia’s broader economic future, including the provision of abundant and affordable energy, but also to enabling Australian competition within the energy-hungry global AI and data centre sectors.

Failure to respond effectively will drive adverse inflationary pressures and direct financial consequences for industry, taxpayers and energy users. In such circumstances, and as global experience already shows, political and voter support for decarbonisation can fade sharply.

Our energy transition is subject to forces beyond its control. Most can’t be avoided without continued evolution of the national strategy towards proven and more resilient ideas and assets.

One key change that could be made relatively easily is to introduce a sponsored baseload strategy for the Australian grid. Being the first and only country in the world to deploy a fully intermittent generation strategy is as difficult as it is unprecedented.

Global experience, even in countries like Denmark with massive world-leading renewables already deployed, show that at a minimum around a 20 per cent baseload dependency remains important. In the Danish case, gas and imported hydroelectric and nuclear power provides this – supporting and enabling its clean and highly electrified economy.

Australia, of course, has no ability to import baseload power from neighbours. It is dependent solely on its own energy systems.

Baseload power options includes nuclear, which is increasingly common and popular globally; hydroelectric power, which Australia uses at scale only in Tasmania; coal, which current policy proposes to phase out; and gas, which we don’t presently use as material baseload. Add to this list the future possibility of ‘baseload solar’, which some global pioneering developers seek to prove and deliver.

From a grid perspective, baseload power is unavoidably foundational for an economy. It reduces power prices for end users, provides reliability, stability, flexibility and system-critical inertia.

Intermittent generation alone does not provide or achieve these things, hence the importance of generational diversity within an economy’s energy system.

From a net zero perspective, as we seek to deploy more renewables, baseload power smooths the inevitable dips in solar and wind generation. It fills gaps, reduces the need to build expensive and potentially white-elephant renewable ‘over-capacity’, it provides certainty, and reduces capital needs for broader system stability and transmission infrastructure. Ultimately, it frees precious taxpayer capital to be deployed for other (or related) causes.

Currently, Australia has no baseload replacement strategy. This is a significant reason we continue to extend our coal generation, and are likely to keep doing so in perpetuity unless our current strategy continues to evolve.

Current planning is for baseload to be phased out almost completely when coal closes, and for our electricity demands to be met by a collection of geographically scattered wind and solar farms – switching up and down with the weather, and supported by large storage via batteries or pumped hydro, and remote connective transmission assets.

All those assets are certainly critical for our de-carbonised future, but they need more than simply increased financial support. They need physical system and generation support and an energy transition strategy that draws on lessons from both global experience and Australia’s own history of baseload reliability.

If our private capital is to rise to a future challenge of including baseload generation in our generation mix, there are two things we can do rapidly and easily to expedite a successful and faster transition to a net zero economy.

First, we should embrace Australian gas abundance and the possibilities it brings. Although it has been ‘out of favour’, gas is a critical, and obvious, transitional energy source. It is abundant and there exists a mature and sophisticated, well-funded gas industry ready to bring it to market without the need for taxpayer funds. With political support, gas projects could easily be fast-tracked.

Secondly, we could implement a legal framework for small modular nuclear reactor (SMR) projects, signalling that Australia is open for business to the world’s SMR original equipment manufacturers, once projects are proven by Australian-based market participants and socially licensed by relevant local stakeholders on a case-by-case basis.

Canada provides a great case study for SMRs. Ontario, a similar jurisdiction to our own in terms of legal system, indigenous sensitivities and vast distances, in 2025 contracted the world’s first purpose-built and grid-connected 300MW SMR Project (Darlington).

The Darlington SMR project will deliver 300MW of baseload generation by 2030, is approved to expand on a modular basis to 1.2GW by 2035, and boasts a 50-year lifespan. Further, it is set up for private sector ownership following construction (ie. return of capital to taxpayers), and is effectively contained within the greater Toronto urban footprint.

Ontario’s energy decisions have seen coal generation completely phased out and complementary intermittent renewables also deployed. The Darlington project will almost certainly revolutionise how the world views solutions to its energy challenges – not just urban commercial and industrial baseload needs, but also remote power systems solutions.

Australia can continue the responsible evolution of its decarbonisation strategy today by making the necessary amendments to gas project and gas generation frameworks to fast-track and encourage gas projects, and by building a legal and commercial framework to be ready for SMR projects which promise to revolutionise energy solutions.

Doing this not only supports and complements intermittent renewable generation, but also embraces the possibility of a more diverse, robust and cheaper clean energy future.

Alexander Danne is a Director of the Menzies Research Centre and Partner and Head of Energy at Clayton Utz.