Victoria (VIC) is experiencing one of the most ambitious energy overhauls in the country. The state that once relied almost entirely on brown coal is now preparing to run on 95% renewables by 2035. This kind of transformation demands an entirely new grid.
VIC’s electricity network was built to carry power from the Latrobe Valley’s coal stations to Melbourne and regional centres. Now, the flow is reversing, which makes the challenge immense. Wind and solar farms in the west, north, and along the coast are generating far from where most energy is consumed, leaving transmission lines congested and the system strained.
Hence, the energy transition in the state is more about wires than wind. From huge interconnections like VNI West to controversial new transmission routes like the Western Renewables Link, VIC is literally rewiring itself for a renewable future. Offshore wind projects off Gippsland’s coast will soon add another layer of complexity and opportunity to the mix.
In this second part of our Electricity Grids: State by State series, we look at how VIC is redesigning its energy backbone to meet the next generation of demand, and what it means for households navigating the most significant grid transformation in the country.
The current grid
The state’s electricity grid was built around the heart of Latrobe Valley, where brown coal has powered the state for decades. The region’s three remaining power stations (Loy Yang A, Loy Yang B, and Yallourn) still supply most of VIC’s electricity. They feed a network from the east to Melbourne’s urban load centres, with high-voltage lines running westward toward South Australia (SA) and north into New South Wales (NSW).
That system, which is designed for steady coal output, is now under increasing stress. The Yallourn Power Station, one of the oldest in the country, is set to close in 2028, four years earlier than planned. Loy Yang A is expected to follow before 2035, marking the end of large-scale coal generation in the state. In total, this will remove more than 5,000 megawatts of caseload power from the grid within a decade.
Meanwhile, renewable generation is growing fast across the state. Wind farms in western VIC and solar projects near Mildura and Shepparton are transforming how and where electricity is produced. However, most of that energy is generated far from Melbourne, where demand remains concentrated. This results in a grid frequently running at its limits with congestion, curtailment, and occasional price spikes when supply can’t reach the city fast enough.
The Australian Energy Market Operator (AEMO) has warned that VIC’s grid, while rich in renewable potential, lacks the capacity and flexibility to move power efficiently between regions. Ageing transmission lines and limited interconnection with other states create bottlenecks that restrict renewable output and drive up system costs.
In short, VIC’s network is being asked to do something it was never built for: manage a two-way decentralised energy flow while retiring its traditional power base. The transition has begun, but the grid that once defined the state’s industrial era is now being stretched to its technical and physical limits.
The challenge: Congestion and coordination
The renewable energy success in the state has created a new kind of problem: too much power, in the wrong places at the wrong times.
Most of the new solar and wind projects in VIC are being built in areas with strong generation potential but limited transmission capacity, particularly in the Western Victoria and Murray River regions. The existing high-voltage lines running from the Latrobe Valley to Melbourne were designed for a one-way flow of coal power. Today, energy from dozens of wind farms and solar hubs is competing for space on those same lines, creating grid congestion and forcing operators to curtail generation when the network can’t handle the load.
This congestion comes with real costs. When renewable generators are ordered to switch off, the lost electricity has to be replaced by more expensive power from other states or gas peaking plants, which drives up wholesale prices. Developers, meanwhile, face revenue uncertainty, making it harder to finance new projects or expand existing ones.
Beyond technical limits, coordination is another major challenge. VIC’s grid upgrades involve overlapping jurisdictions:
- AEMO manages the National Electricity Market
- AusNet Services maintains key transmission assets
- Energy Victoria oversees the Renewable Energy Zones
Aligning investment timing, community consultation, and environmental approvals has proved complex and slow.
The Western Renewables Link illustrates this tension. The 500-kilovolt line is critical to connecting western wind farms with Melbourne’s load centres, yet it has faced significant local opposition from landholders’ concerns about farmland impacts and visual intrusion. Similar community resistance has emerged around VNI West, a major interconnected project intended to move power between VIC and NSW.
In essence, the challenge is about whether the grid can keep up. Without faster coordination and local buy-in, the state risks generating more clean power than it can deliver, undermining investor confidence and household affordability.
The renewable expansion: From Coal Valley to offshore wind
The state is replacing its coal heritage with a diverse mix of onshore wind, large-scale solar, and what will soon become one of the world’s most advanced offshore wind industries.
Inland, the shift is already visible. Western VIC has become the state’s renewable heartland, home to major wind projects such as Dundonnell, Stockyard Hill, and Bulgana. They are all producing enough electricity to power hundreds of thousands of homes, but their success has also exposed the limits of the existing grid. Without stronger transmission links, much of that clean energy risks being trapped where it’s produced.
To the north, solar farms near Mildura, Shepparton, and Kerang are taking advantage of the state’s high sunshine hours. These projects are helping smooth the daily peaks in demand, particularly when combined with emerging battery systems like the Melbourne Renewable Energy Hub. Yet, they too face output restrictions during periods of grid congestion.
The next frontier lies offshore. The Victorian Government has set a target of 2 GW of offshore wind by 2032, expanding to 9 GW by 2040. The Gippsland coast has been declared the state’s first offshore wind zone. Developers from around the world are lining up to invest, planning projects that could each rival the output of the Latrobe Valley’s remaining coal stations.
Offshore wind introduces entirely new infrastructure demands: undersea cables, offshore substations, and new onshore transmission routes to bring power inland. These developments will reshape the grid and energy geography, which will transform generation from the east and west toward the southern coastline.
New infrastructure – The REZs and transmission boom
To make its renewable goals achievable, VIC is embarking on the biggest electricity infrastructure program in its history. Aside from expanding its grid, it is also rewiring it from the ground up to handle a new mix of power sources and two-way energy flows.
At the centre of this transformation are Renewable Energy Zones (REZs). Five designated regions have been identified by the Victorian Government as the AEMO as the state’s renewable backbone, which are the following:
- South-West REZ: Focused on wind generation near Mortlake and Portland
- Western Victoria REZ: A dense cluster of wind farms feeding into the Western Renewables Link.
- Murray River REZ: The state’s key solar hub, taking advantage of high sunlight and available land.
- Gippsland REZ: Set to integrate offshore wind power and existing transmission from the Latrobe Valley.
- Central North REZ: Combining smaller-scale and battery developments to support local grids.
Each REZ is designed as an integrated ecosystem of generation, storage, and transmission with pre-approved grid connection points to make it easier and faster for renewable projects to plug in.
Supporting these zones are two of the state’s most important transmission projects:
- Westen Renewables Link: A 500-kilovolt line connecting new wind and solar projects in the west to Melbourne’s demand centres. It will relieve congestion, improve reliability, and enable VIC to export surplus energy to SA and NSW.
- VNI West Interconnector: A major cross-border link that will allow electricity to move more freely between VIC and NSW, balancing supply and demand as coal plants retire on both sides of the border.
VIC is also building out its storage and firming capacity. The Victorian Big Battery near Geelong remains one of the largest lithium-ion systems in the world, providing critical grid support during peak periods.
Several new battery projects like the Melbourne Renewable Energy Hub and Kerang Energy Storage System are set to join it, alongside growing numbers of community batteries that support local neighbourhoods and small towns.
For years, transmission planning was a background task. Now, it’s the single most important factor determining how quickly the state can decarbonise. Each kilometre of new line directly shapes how much renewable energy can reach the market, and how soon the state can retire its remaining coal fleet.
What it means for the future
In the country, VIC’s grid transformation is one of the most ambitious and also one of the most urgent. With coal generation set to phase out by the early 2030s, VIC has less than a decade to replace the baseload power that has underpinned its economy for generations.
If the infrastructure program stays on track, VIC could become the nation’s renewable powerhouse. A network reinforced by new transmission lines, interconnections, and storage capacity would enable the state to operate on 95% renewable energy by 2035, while exporting excess electricity to neighbouring states. This would also unlock billions in regional investment, particularly in the western and coastal zones where new projects are concentrated.
For households and businesses, that means access to cleaner, more stable power in the long term. As renewable penetration grows, price volatility should decrease, and VIC’s dependence on imported fossil energy will fall. Battery storage and demand management will smooth peaks, reducing the likelihood of blackouts or extreme price events during heatwaves.
However, any delays to VNI West or the Western Renewables Link could widen the reliability gap left by coal closures. Large-scale renewable projects are also vulnerable to cost pressures from materials shortages, financing hurdles, and community opposition. Even with strong government coordination, timing remains the biggest challenge and the most critical success factor.
What it means for homeowners
The grid overhaul in the state might sound like a large-scale engineering challenge, but its outcomes will be felt most directly by households. The way homes consume, store, and even sell electricity is being reshaped alongside the state’s transmission rebuild.
Here’s what homeowners can expect as VIC’s rewiring progresses:
- More dynamic electricity pricing
As renewable generation expands and the grid becomes more flexible, time-of-use (ToU) tariffs will grow more common. Power will cost less when solar and wind output is high, typically in the middle of the day, and more during peak evening demand. Smart meters and home energy management systems will help households adjust usage automatically to save money.
- A stronger case for home batteries
The “duck curve” pattern is already visible in the state. Storing excess solar during the day and using it after sunset will become one of the most effective ways to cut bills. Households that combine rooftop solar with battery storage will be well-positioned to benefit from energy trading programs and virtual power plants (VPPs).
- Fewer outages, better reliability
As new transmission corridors and large-scale batteries come online, grid stability will improve. For homeowners in outer suburbs and regional areas, that means fewer disruptions during extreme weather or heatwaves.
- Opportunities for participation
Many new community batteries and local renewable projects will allow residents to take part through shared ownership or storage schemes. Homeowners could earn credits for contributing excess solar power or demand flexibility during peak times.
- Short-term price volatility, long-term savings
The transition won’t be seamless. As coal retires and new projects connect, wholesale prices may fluctuate. But once the infrastructure is in place, renewable generation’s lower operating costs are expected to stabilise and eventually reduce household electricity prices.
Victoria’s electricity grid is being rebuilt for a new era — one defined by renewables, regional investment, and a far more flexible relationship between how power is made and how it’s used. The state’s determination to replace coal with wind, solar, and storage has turned it into one of Australia’s most ambitious energy laboratories.
The next few years will test how quickly large-scale infrastructure can be delivered, how communities adapt, and how well policy keeps the lights on during the transition. But if Victoria succeeds, it will set the national standard for what a fully rewired, renewable grid can look like — one that delivers cleaner, cheaper, and more reliable energy to households across the south.
In the next part of our Electricity Grids: State by State series, we’ll head north to Queensland — a state transforming from coal powerhouse to renewable export giant. There, the challenge isn’t just rebuilding the grid, but reimagining how Australia’s sunniest state can power both itself and its neighbours in the decades ahead.
Energy Matters has been in the solar industry since 2005 and has helped over 40,000 Australian households in their journey to energy independence.
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