Australia’s Competitiveness and Energy Challenges

Productivity and competitiveness have continued to dominate the national agenda for governments and businesses throughout 2025. The Federal Government’s Economic Reform Roundtable earlier this year aimed to build consensus across government, business, unions and civil society on how to strengthen Australia’s productivity, economic resilience and budget sustainability.

Against this backdrop, we thought it timely to reflect on one of Australia’s ongoing competitiveness challenges in the context of Eight Advisory’s recently released 2025 Competitiveness Report¹. Eight Advisory is McGrathNicol’s international partner, enabling us to support clients beyond Australia and New Zealand. The report assesses how effectively countries convert their natural resources, human capital and institutions into progress that benefits society.

Australia ranks as a highly competitive country, largely driven by strong performance in economic competitiveness, education and quality of life. However, our competitiveness is tempered by a lag in sustainability. Australia sits in the bottom half of countries assessed on this measure, driven by high carbon emissions and slower progress in the energy transition.

What are the challenges facing Australia?

Despite Australia’s abundance of renewable energy resources, there are several unique challenges confronting both governments and businesses in delivering the infrastructure needed to support the energy transition. Key challenges include:

• Australia’s renewable energy sources are often located far from existing transmission networks, resulting in significantly higher infrastructure costs to connect them to the grid or major population centres.

• A relatively small population spread across a vast continent limits the potential customer base and revenue streams for large-scale capital projects, making commercial viability more difficult to achieve.

• Rapid growth in energy-intensive industries, such as data centres, adds complexity to forecasting future demand. In FY25, data centres consumed 4 terawatt hours of energy across the National Electricity Market, representing around 2% of grid supply. AEMO forecasts this demand to more than double by FY30, though estimates vary widely - from 8 to 13 terawatt hours. In Europe, electricity demand from data centres is projected to grow by up to 23% annually between 2024 and 2030².

What does this mean for businesses?

• The returns from large infrastructure and energy generation projects are exposed to uncertain future scenarios. These risks need to be rigorously modelled, assessed, and understood by developers, investors, and financiers.

• Project timelines and budgets must be actively monitored, with any deviations from initial plans quickly identified and addressed.

• Contractor and subcontractor agreements need to be assessed to ensure suppliers have the financing and working capital to deliver on their agreements.

• Contracts must clearly define who bears the risk for unforeseen costs, delays, or other adverse events that may affect budgets or delivery schedules.

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¹ 2025 Eight Advisory Competitiveness Report

² 2025 Eight Advisory European Data Centres – Powering growth in the age of AI