An exercise in energy sector hindsight: What did we get wrong about the future back in 2005?

Given the relentless evolution of Australia’s energy landscape, it is easy to become absorbed in the immediacy of change. But the success of the country’s energy transition demands attention on the big picture, too. A consideration of the transition in the broader sweep of history is one way to zoom out and take it all in.

When Nous Group’s Energy and Decarbonisation team, together with our Energy Advisory Council, paused to consider the energy system of 2025 from the vantage point of 2005, we realised how thoroughly the sector had failed to imagine the scale and speed of change.

Looking back from 2025, it is clear that the energy sector’s greatest strength and greatest weakness has been its tendency to extrapolate the present into the future. The changes that have defined the last twenty years were, for the most part, unanticipated by those tasked with planning, investing, and regulating the system. Ten or even twenty years may be a short span in the life of infrastructure, but it is an eternity in the life of technology and policy.

When we reflected on the past twenty years, five themes emerged, each with lessons for energy businesses. We outline them in what follows.

In 2005, Australia’s energy system was shaped by the legacy of privatisation and a determined focus on operational efficiency. The electricity sector had undergone massive reform over the preceding decade, shifting from state-based, vertically integrated utilities to a national electricity market with clearly delineated roles for regulators, policymakers, and market operators. Transmission and generation assets were managed to extract maximum value, capital expenditure was tightly controlled, and the prevailing wisdom was to “sweat the assets” rather than invest heavily in new infrastructure. 

At the time, fossil fuels – coal, gas, and oil – were plentiful and the generation system was considered robust and mature. There were murmurs of concern about climate change (the UK Stern review was still a year away, and Australia’s Garnaut review two years away), but this was largely seen as a distant environmental issue, manageable by separate regulatory frameworks and not yet considered central to energy policy or market design. The dominant narrative was one of incremental reform, with governments expected to intervene only occasionally to tweak regulations or set broad policy directions.

Decarbonisation, however, was conspicuously absent from the policy and regulatory dialogue. Energy reforms of the 1990s and early 2000s focused on competition, efficiency, and national coordination. It was not until the mid to late 2000s – prompted by international developments such as the UK’s Stern Review and the rising profile of climate change in political debate – that decarbonisation began to appear on the policy radar. Even then, the prevailing view was that energy transition would be gradual, with governments reluctant to pursue aggressive intervention.

It is similarly striking that in 2005, consumers were not considered (nor expected to become) significant players in the energy system. They were passive stakeholders, with little discretion over their energy choices. Only a very small proportion had solar panels. Even since then, industry’s acceptance of consumers as important players in the sector has been a journey. The result has been lost opportunity for integration, faster uptake of consumer energy resources, and improved trust in the energy transition.

The lesson here is self-evident: do not simply extrapolate the present in thinking about the future. And further, do not presume scenario planning – constrained as it is by the two-by-two matrix – is a sufficiently expansive technique to develop the range of possible futures. For a more expansive approach, see the approach the Australian Energy Market Commission (AEMC) used to inform its long-term energy narrative. From the backdrop of its vision for the energy stem, the AEMC reflected on the implications of six potential drivers of Australia’s energy transition.

Energy policy is inevitably political. Intervention and markets will always be in uneasy, though occasionally productive, tension. This has certainly proved true over the past twenty years. As the scale and complexity of the energy transition became apparent, governments at both the state and federal levels found themselves intervening more frequently, both to steer investment and to address emerging risks.

Structurally, 2005 was marked by a greater definition of roles. The separation of the Australian Energy Market Commission (AEMC) as rule maker and the Australian Energy Regulator (AER) as regulator represented a new institutional framework, intended to ensure clarity and reduce the risk of arbitrary intervention. The government’s role was to set high-level policy principles, with the market expected to deliver day-to-day outcomes.

The need for more robust planning and coordination became evident as the sector evolved. With the proliferation of distributed resources, the integration of renewables, and the imperative to ensure reliability and security as the system evolved, mechanisms for central planning have taken on increasing importance. 

This shift towards greater intervention and planning has also brought new challenges in balancing regulatory certainty with the need for innovation. While stronger oversight and coordination have helped manage systemic risks and accelerate the adoption of renewables, they have also introduced complexities for market participants navigating a changing policy landscape.

The lesson to draw is the criticality of policy and regulatory teams. Too many operate well beyond 100 per cent capacity. So, yes, resources are important, with teams needing the capacity not only to manage ongoing policy and regulatory submissions, but also to engage in deeper thinking and provide thought leadership. But it is more than just resources. Attention needs to be given, amongst other things, to ensuring alignment on key issues across leaders, setting clear roles for Executives and the Board to support advocacy, and ensuring approval processes for submissions do not add undue time to submission development. In essence, the broader operating model needs careful thought.

For investors, the period circa 2005 was defined by caution. The privatisation process had led to significant overpayment for many assets, resulting in an era where capital budgets were sharply constrained and efficiency gains were prioritised over new build. The overarching philosophy was to avoid unnecessary risk, extract as much value as possible from existing assets, and exploit any small upside opportunities that arose.

Transmission infrastructure was considered a safe, if unglamorous, investment, and there was little appetite to consider radically new paradigms for energy delivery. The notion of investing with a 40-year horizon was questioned, but few were willing to challenge the orthodoxy. Distribution businesses, meanwhile, began to modernise, with the first inklings of customer-centric innovation – smart metering and improved service delivery – emerging as areas of regulatory and commercial interest.

The investment landscape in 2025 is marked by new risks and constraints. The regulatory frameworks that once promised predictability have become increasingly prescriptive, sometimes stifling the flexibility needed for innovation. Investors, once content with regulated returns from transmission and distribution assets, have grown wary of long-term commitments in the face of uncertainty over medium- to long-term returns, community engagement challenges, and shifting policy terrain.

The qualitative factors that cannot be easily captured in spreadsheet models must be reflected on as closely as the quantifiable elements that fit neatly into models. Again, operating model considerations come to the fore, with the need for close collaboration between the finance team, the technology futures team, the policy team, and other relevant experts. As a specific point, investment decision-making should incorporate real options which position businesses to modify, delay, expand, or abandon projects as new information emerges.

Looking forward from 2005, few could have predicted the pace and impact of technological innovation or the demands on the energy workforce. The cost of solar and wind power was prohibitively high, and large-scale adoption was regarded as a distant possibility. Energy storage technologies were in their infancy, and there was widespread scepticism about whether storage could ever be viable at scale. The idea that households might one day achieve self-sufficiency through a combination of rooftop solar and batteries was considered fanciful.

Yet, by 2025, technology has reshaped the sector in ways that were unimaginable two decades prior. The cost of renewables has fallen dramatically, distributed energy resources have proliferated, and digitalisation has enabled new forms of customer engagement and network management. Indeed, many sector forecasts (on the supply and demand side) have missed. For example, on the supply side, the International Energy Agency has routinely under-estimated the solar buildout. On the demand side, forecasts were initially too high – in 2005, electricity demand was expected to continue growing as it largely always had. The reality was that the economy shifted away from electricity-intensive industry, consumers responded to rising electricity prices, and energy efficiency improved. More recently, demand forecasts have required constant revision to reflect households installing rooftop solar, appliances and vehicles electrifying, population growth changing (particularly due to COVID-19), and new sources of electricity demand appearing. As it turns out, correctly predicting the future is hard. The lesson is clear: scenario planning must accommodate dramatically different futures, and sector participants must remain open to the possibility – and disruptive potential – of unexpected outcomes.

As we set out in an earlier piece, 'The end of the value chain: Setting the scene for the future of the energy ecosystem', the lesson to draw is to reflect in what areas of technology do you need to be at the frontier to maintain your market position. And based on that, build the capabilities to drive technological development, ensure the risk appetite supports the necessary experimentation and bring customers, stakeholders and regulators on your journey.

Perhaps the most enduring lesson from the past two decades is the importance of engaging communities and stakeholders in the transition. Energy infrastructure investments have too often appeared technocratic, imposed from above, and unresponsive to the aspirations and concerns of local communities.

One of the most significant obstacles to new investment has proved to be not technical or financial in nature, but social: securing community support for large-scale infrastructure projects has proven to be a recurring challenge. We have learnt, sometimes painfully, that the transition to a low-carbon, distributed, and digitalised energy system will not succeed without meaningful engagement and shared purpose. These realities have spurred renewed interest in decentralised models, where smaller, community-level systems may offer a more politically and socially acceptable path forward.

As we noted in 'You need to build trust before you can build infrastructure: Engaging the community in Australia’s energy transition', a step change is required in how energy businesses consider community engagement and social value creation. We called this ‘Community Engagement 3.0,’ with its focus on truly understanding the community’s views on their needs and providing value that reflects local aspirations.

This thought experiment provides a timely reminder that the energy sector has been reshaped by forces that were barely understood two decades ago. The future will likely prove no less surprising.

The sector’s rapid evolution, driven by unexpected technological advances and shifting social dynamics, underscores the need for ongoing vigilance and adaptability. The challenge now is to apply the lessons of hindsight to the foresight needed for the decades ahead. We must remain alive to uncertainty, open to different approaches, judicious in our investments, attuned to potential disruptions, and deliberate in our engagements.

In particular, building the capabilities to pioneer technology, fostering a risk appetite that supports experimentation, and truly engaging with communities and stakeholders will be essential. We must be prepared to adapt as the landscape continues to evolve, recognising that meaningful engagement and shared purpose are now as critical to success as technical innovation and financial investment.

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