The Victorian Government has announced a set of new energy reforms aimed at securing the state’s gas supply, encouraging electrification and driving down energy bills.
According to the State Government, gas is part of Victoria’s energy transition, but supplies from the Bass Strait are dwindling and prices are going up.
The Victorian Government said its new reforms will protect jobs and ensure the industry has the gas it needs, make the switch to electrification more affordable, make rental homes more comfortable and affordable and support local businesses and workers to build efficient appliances.
The reforms include:
Securing the state’s gas supply
The State Government said it is not just making sure Victoria has the gas it needs – it is reserving it for industry.
The steps the Victorian Government will take to avoid the gas shortfalls forecast by the Australian Energy Market Operator (AEMO) for south-eastern states by 2029 are outlined in its Gas Security Statement.
According to the State Government, the new reforms will deliver major gas savings, supported by more Victorians switching to efficient electric appliances and existing rules that require new homes to be all-electric. The Victorian Government said by reducing household demand, it is reserving gas for industry.
By 2029, the reforms are expected to unlock just under 12PJ of gas every year, and 44PJ annually by 2035 – enough to meet 85 per cent of Victoria’s forecast industrial demand.
The State Government said this will allow more gas to be used by Victorian manufacturers, supporting jobs and keeping local industry strong.
Since the beginning of 2025, the State Government said it has seen more than $2 billion in announcements for new gas production and exploration for the Victorian market.
The combined effort to secure gas supply and reserve it for industry aims to ensure Victoria avoids forecast gas shortages.
Existing gas hot water systems
Under new regulations set to take effect from 1 March 2027, when a gas hot water system reaches the end of its life, it must be replaced with an efficient electric alternative like a heat pump.
The Victorian Government said electric hot water systems will save households around $330 a year, or $520 with solar.
Electric hot water systems can also be cheaper up front than gas systems, with rebates available from the State Government’s Victorian Energy Upgrades and Solar Victoria programs of up to $1400.
The Victorian Government said these reforms are about the gas system’s end of life, so gas hot water systems can still be repaired if they break, and they can also be temporarily removed and reinstalled during renovations.
There are no changes to heating for owner occupiers, or to gas cooking in existing homes under the reforms.
New homes
From 1 January 2027, all new homes will be built all electric. The State Government said this will put around $880 per year back in the pockets of new homeowners, or $1820 if they have solar.
From 1 January 2027, all new commercial buildings (other than industrial, manufacturing and agricultural buildings) will also be required to be built all electric.
There are no changes to rules regarding end-of-life replacement for gas appliances in all existing commercial buildings. The use of LPG for households or business is also unchanged.
Energy efficiency standards
From 1 March 2027, new minimum energy efficiency standards will apply to rental properties and public housing:
- Hot water systems must be replaced with efficient heat pumps at end of life
- Gas heaters at end of life must be replaced with reverse-cycle air conditioners
- A minimum four-star Water Efficiency Labelling and Standards (WELS) rated shower head must be installed at the start of a new lease
- Minimum R5.0 rating ceiling insulation must be installed at the start of a new lease where there is no ceiling insulation already in place
- Draught sealing, including weather seals on all external doors, windows and wall vents must be installed at the start of a new lease
Main living areas are already required to have heating. Additionally, from 1 March 2027, at the start of a new lease, main living areas must also have an efficient electric cooling system. Installing a reverse-cycle air conditioner will acquit both the heating and cooling requirements.
Every single upgrade a property may need under the new minimum efficiency standards is eligible for a discount under the Victorian Energy Upgrades program. Exemptions also apply, including if installation costs are too high or if there is not enough space.
The Victorian Government said the rental standards have been set following extensive consultation to make sure they are achievable and keep costs affordable for rental providers.
Backing local manufacturing
The State Government is investing $9.5 million towards an Industry Diversification Program to make sure Victoria’s appliance manufacturing industry is ready to meet the demand for energy efficient hot water appliances.
This is expected to support existing businesses to ride the wave of the expansion of electric appliance manufacturing and help the gas appliance manufacturing supply chain upgrade their facilities and reskill their workforce.
Industry response
Energy Efficiency Council
The Energy Efficiency Council (EEC) welcomed the Victorian Government’s decision to cut home energy bills and free up gas for industry with a raft of new regulations designed to accelerate electrification of buildings across the state.
EEC CEO, Luke Menzel, said the Victorian Government’s package of reforms set the pace for other states.
“The EEC sees this package of reforms as a big step towards an all-electric future for Victorian households and it establishes a benchmark for other states and territories to follow,” he said.
“These reforms will bring down energy bills for Victorian families, they will protect renters across the state, and they’ll free up gas for industry.”
However, Mr Menzel said it was disappointing that one of the major reforms the government consulted on – phasing out gas space heaters in existing homes – was dropped from the package.
“Electrifying space heating is a huge opportunity for cutting bills and freeing up gas for industry,” he said.
“While it is disappointing, this outcome means electrifying space heating rockets to the top of the list for the next tranche of reforms the Energy Efficiency Council will be calling on the Victorian Government to deliver.”
The announcement of the reforms coincides with the release of new new independent analysis from the EEC, shows an ambitious program of efficiency and electrification in Victoria’s buildings could free up an average of 80PJ of gas a year by 2035 to support industries impacted by high prices and gas supply shortfalls.
The analysis considers the benefits of an ambitious policy suite that goes beyond the Victorian Government’s reforms and shows that further effort on electrification and energy efficiency could cut residential gas demand from Victorian households by 64 per cent by 2035.
The EEC said this would lower household energy bills and free up gas supply for core industries that will take time to switch to other fuels, including food processors, pharmaceutical manufacturers, cement producers, and pulp and paper manufacturers.
“These numbers show just how much more can be achieved through efficiency and electrification,” Mr Menzel said.
“It underlines that the solution to our gas challenge isn’t always digging more of it up, or shipping more of it in. Being smarter about the way we use gas, electrifying where it stacks up economically and saving the gas we have for higher value uses in industry, will be a big part of that transition.
Mr Menzel said the Victorian Government has taken a big step towards unlocking this huge opportunity with its new reforms.
“We need to keep up the momentum so we can deliver the benefits of efficiency and electrification for every family and business in Victoria.”
Energy Consumers Australia
Energy Consumers Australia (ECA) also welcomed the announcement.
ECA CEO, Brendan French, said the reforms will provide consumers with the certainty they need to take action and plan for the future.
“Our research shows household electrification will also mean significant cost savings for consumers,” Dr French said.
“We look forward to seeing further announcements in the coming weeks regarding funding for the supports that will be provided to enable this transition for Victorian consumers.”
Dr French said ECA was also pleased to see the announcement regarding the minimum energy efficiency standards for rental properties in Victoria.
“Alongside other stakeholders, we have called for this for a long time. Our research shows that renters face particular barriers in the energy transition, and are more likely to be facing energy poverty.
“Improving the energy efficiency of rental properties and introducing more efficient electric appliances will cut down people’s energy use and bills,” he said.
“We understand the reasons why space heating and gas cooking for existing private properties hasn’t been included, but we look forward to this being included in future iterations of the Victorian Gas Substitution Roadmap.”
Energy Networks Australia
Energy Networks Australia (ENA) welcomed the Victorian Government’s announcement that there will be no changes to heating for owner occupiers – a move ENA said will help avoid spiking electricity wholesale prices during winter demand peaks.
ENA CEO, Dominique van den Berg, said ENA modelling shows that the wholesale cost of electricity would have gone up for all Victorians – homes and businesses – if they were forced to switch from gas too soon.
“This is a sensible recalibration. It gives the industry time to plan for the changes and for households to consider electrification solutions that make sense for them – without creating sudden and unexpected cost burdens for everyone.
“Energy networks support decarbonisation, but the pace and sequencing of reform matters. This new plan better recognises the complexity of the transition and the diverse needs of Victorians,” she said.
“We look forward to continuing to work collaboratively with the Victorian Government on the implementation of this policy.”
The Australian Pipelines and Gas Association
The Australian Pipelines and Gas Association (APGA) welcomed the Victorian Government’s decision to allow repairs on existing gas appliances, recognising it as a step toward a more deliverable and consumer focused energy transition.
APGA Chief Executive, Steve Davies, said the State Government’s shift away from an outright appliance ban is a pragmatic move that better reflects the diversity of Victorian homes and the varying needs of households.
However, he said targeting hot water in isolation risks recreating the same problems in a narrower form.
“When you need to design a broad exemption regime just to make a ban workable, it’s worth asking whether that ban should exist at all,” Mr Davies said.
“For many households, particularly those in older homes or regional communities, gas hot water is not just a preference, it’s the most practical and affordable option.”
APGA said it has called for an integrated energy transition strategy that supports emissions reduction through both electrification and renewable gas, while maintaining flexibility and fairness for consumers.
“Technology-neutral policy makes sense. Not just for emissions outcomes, but for household budgets.”
“Energy transitions succeed when they empower people, not when they lock them into one-size-fits-all solutions that don’t match their circumstances.
“We urge the Victorian Government to go further, to remove unnecessary restrictions and instead focus on supporting choice, clarity and investment across the full suite of clean energy options.”
