Geelong Manufacturing Council has urged the Victorian Government to withdraw its current proposal under the government’s Gas Substitution Roadmap.
In a submission this week, GMC calls for a balanced energy transition strategy that ensures energy security and energy advantage for Victoria, protects jobs, and supports Victorian businesses.
“Victorian manufacturers are producing the highest-quality materials and goods under world-class conditions and providing safe and meaningful work for Victorians,” the submission says.
“The rising cost of energy has meant many Victorian industries have become uncompetitive against cheap overseas imports – where fossil fuels continue to be used extensively to produce steel, glass and other basic requirements of a modern society.”
GMC CEO, Jennifer Conley, says the future of Victorian manufacturing industries which rely heavily on gas, such as agricultural processing and the production of steel components for infrastructure including wind towers, is at risk. “Mounting energy cost pressures will force the extinction of these businesses, while having no impact on global CO2 emissions,” she said.
GMC’s Submission
Overview
Geelong has a long and rich history in manufacturing. Manufacturers drive disproportionate benefits to the rest of the economy. R&D and investment in manufacturing feeds innovation across society, and the sector is the key contributor to high-value export earnings.
The Victorian Government has been developing policies to shift Victoria’s energy system toward full electrification as part of its net-zero strategy. This includes implementing its Gas Substitution Roadmap to progressively electrify homes and businesses. As part of that policy, the government has released a proposal – the Building Electrification Regulatory Impact Statement (RIS).
Under Option 3, all existing residential gas hot water and heating must be electrified through replacement at end of life and all new residential and commercial buildings must be built all-electric. This option excludes all existing residential cooking and existing commercial buildings from electrification requirements.
While existing industrial and commercial properties can keep their gas appliances and replace them at end-of-life, the proposal does not take into account rising across-the-board costs associated with the scaling down of gas use.
We canvassed members for their responses to the proposal and commend the following GMC submission with comments and recommendations to you for consideration.
Impacts on manufacturing
A key assumption underlying the plan is that reduced use of gas by domestic users will not impact ongoing users of gas – or that they will be able to shift to alternative energy sources.
Costs
- The proposed regulations under consideration in the Building Electrification Regulatory Impact Statement will increase the price of gas for current users, many of whom are manufacturers critical to Australia’s future economic security, contrary to the Victorian Government’s assumption.
- Alternative modelling shows the Victorian Government’s current gas policies will result in Victoria’s wholesale electricity price shifting from the lowest in the country to the highest. [1]
- Far from reducing gas demand under the proposal, peak daily gas demand is predicted to fact increase by 34%. This is the result of pressures on the electricity grid and firming challenges – following increasing electrification and reducing domestic gas appliance use – and the consequent need to shift to gas-powered generation (GPG) during peak periods. [2]
- Network charges, which account for approximately one-fifth of a customer’s gas bill, are expected to rise by around 20% per year over the next five years, effectively doubling costs within that period.
Lack of alternatives
With current technological advances decades away, many manufacturers are unable to deploy alternative solutions to gas, even in the medium term, for powering their processes. We share here just two of many Geelong industry examples:
- Industrial galvanizing of steel – a critical process in ensuring long life performance of steel infrastructure, for example in building steel components for wind and solar power distribution – relies heavily on gas. Even in Europe, where innovation has been heavily supported by governments for decades, no viable fully electric solution is deployed. In Asia, where Australian infrastructure projects have sourced cheap imports, all galvanizing of steel is powered by gas, while workers are exploited, and environmental standards are lax at best, and often non-existent.
- The future of Victoria’s grain processing industry is at risk, following decades of failure on gas policy. This latest proposal exacerbates an already deteriorating value proposition for Victoria. Grain processors export largely to Asia-Pacific. If Victoria’s energy prices continue to be increasingly uncompetitive, these operations will seek alternative locations – with the loss of Victorian well-paid jobs, including senior global management roles and local operations.
Impacts on Victoria
The Gas Substitution Roadmap’s stated aim is to help “our state navigate the path to net zero emissions while cutting energy bills and enhancing access to a reliable and safe energy supply.”
The Building Electrification RIS suggests that existing commercial and industrial users are exempt from the changes, however they will not be exempt from the increased gas network charges that are a consequence of this policy.
- As Victoria’s 2.1 million residential customers steadily leave the gas network, our manufacturers – many with no practical alternatives to gas – will be left to absorb increasing network costs – or leave the state.
- The cost implications are alarming. If the government’s proposed changes are implemented, manufacturers will be faced with double their network charges within five years.
- At the same time, electricity prices are rising. The Australian Energy Regulator reports a 71% increase in Victoria’s wholesale electricity prices for the final three months of 2024 compared to the same period in 2023. Forcing more homes and businesses off gas and onto the electricity grid will only drive prices higher, adding further strain and creating new energy reliability risks.
Victoria’s energy advantage squandered
At one time, Victoria had an energy advantage over other states in Australia and other countries around the world.
Our attractiveness as a place to invest for many decades was based on the availability of cheap, reliable energy. This is no longer the case.
The rising cost of energy has meant many Victorian industries have become uncompetitive against cheap imports – where fossil fuels are used to produce steel, glass and other basic requirements of a modern society.
Our members are deeply concerned about the significant cost increases they will face under these proposed changes.
- Energy costs for manufacturers are steadily increasing to unsustainable levels, evidenced by the closure recently of Australia’s largest glass manufacturer, Oceania Glass, in Dandenong.
- Cheap imported substitutes are poor quality solutions for Australia and rely extensively on exploiting workers in unsafe workplaces, with low environmental standards. Closing our local industries will only offshore emissions, lead to worse outcomes globally, and result in significant loss of high value, well paid Australian jobs.
Manufacturing vital for Victoria and Australia
Manufacturing plays a critical role in Australia’s economy due to its power to drive innovation and deliver value beyond the companies themselves.
A strong advanced manufacturing sector creates secure, well-paid jobs and fosters sustainable economic growth and national security in emergency supply chain disruptions, future-proofing Australia’s sovereignty.
Victorian manufacturers are producing the highest-quality materials and goods under world-class conditions and providing safe and meaningful work for Victorians.
The rising cost of energy has meant many Victorian industries have become uncompetitive against cheap overseas imports – where, it must be said, fossil fuels continue to be used to produce steel, glass and other basic requirements of a modern society.
Mounting energy cost pressures will force the extinction of many Victorian industries – while having no impact on global Co2 emissions.
We urge the government to withdraw the current proposal and conduct genuine consultation with industry to develop a practical, balanced energy transition strategy that ensures energy security, energy advantage for Victoria, protects jobs, and supports Victorian businesses.
[1] Simshauser, P. and Gilmore, J. (2024) ‘Policy sequencing: on the electrification of gas loads in Australia’s National Electricity Market’, Centre for Applied Energy Economics and Policy Research: Working Paper Series, p. 11. Report can be accessed here https://www.griffith.edu.au/__data/assets/pdf_file/0023/2064560/2024-10-NEM-Electrification-07.01.pdf
[2] Simshauser, P. and Gilmore, J. (2024), p.17.