NSW has destroyed Morrison’s “gas-led recovery”

At the AFR comes the Morrison’s Government worst minister (and that’s saying something):

Federal Energy Minister Angus Taylor has demanded the NSW government hand over the modelling behind its energy infrastructure road map amid worries in Canberra it will push up power prices and among electricity suppliers that the policy will derail planned new gas power stations.

Mr Taylor will voice concerns at The Australian Financial Review Energy and Climate Summit on Monday that the NSW road map announced earlier this month could have unintended consequences and drive price spikes should coal plants shut early, despite the modelling finding it will reduce power bills.

Here is the plan, from Matt Kean NSW Minister for Energy and Environment, also at the AFR:

In NSW, we face another risk: over the next 15 years, four of our five coal-fired power stations will reach the end of their technical lives.

This is not just a reliability problem. Prices can skyrocket in a tight energy market when power stations close before they are replaced. After the closure of the Northern and Hazelwood power stations, NSW electricity prices increased by 60 per cent – and those power stations weren’t even in NSW.

To replace these power stations we need to build not just renewable generation, but new transmission lines to allow those generators to connect to the grid, and pumped hydro, batteries and gas to keep the system reliable.

…At the heart of the plan is an independent consumer trustee. It will provide long-term contracts for the renewable generation, long duration storage and firming (batteries and gas) needed to keep prices down and lights on.

The contracts reduce consumer prices by reducing investment risk. The infrastructure we need is capital intensive. The more risk investors face when investing in generation and storage, the higher the prices they need to proceed.

By guaranteeing a minimum price, the consumer trustee is effectively selling a put option to power providers. This may seem a little odd given it could keep prices higher than they might otherwise be but it’s a sensible compromise to get the investment needed, given that investment faces the conundrum of ever-cheaper renewable technologies that can price out investment in five years. This is technology agnostic and can include gas. But it won’t. Renewables plus partial storage is already cheaper for power than today’s prices for coal and gas:

Australian energy costs compared

In five years it will be much cheaper:

Price of solar and batteries over next 5 years

If it goes the way we think it will, renewables plus full storage will be more than 60% cheaper than coal and gas:

Price of solar and batteries over next 5 years

This basic truth is still lost on the Feds which are more focussed on fossil fuel votes than good policy, such as Coalition hack Nick Cater:

Grattan’s speculative assessment that the price of gas will make it too expensive to bring down the price of electricity or the cost of industrial production underpins its claim that it is yesterday’s fuel.

Yet the spot price of gas has fallen considerably in the east coast market since its peak early last year. Lower-priced offers from gas-powered generators in turn helped bring down wholesale electricity prices, according to the Australian Energy Market Operator.

The removal of moratoriums to unlock supply in NSW and Victoria, together with the expected arrival of re-gasification terminals in one or more east coast locations, will further bring down prices, together with government moves to introduce more market transparency and new investment in gas pipelines.

The prospect of cheap and abundant gas should calm the nerves of those concerned about greenhouse gas emissions. The renewable energy sources in which we have invested so heavily will at last be able to pull their weight supported by quick-fire gas, which Chief Scientist Alan Finkel describes as “the perfect complement to wind and solar”.

It was possible to use gas for longer in the power transition but the Coalition butchered that horribly with its Gas Unplan and Gas Unreservation, which only guaranteed higher gas prices for longer by refusing to tackle the gas cartel with domestic reservation to lower prices. Contrary to Cater’s drivel, contact prices for Australian gas, which comprise 95% of east coast consumption, are still around $9Gj and will rise with the coming rebound in Brent oil. LNG imports can help but not even they get prices below $8Gj long term.

The simple fact is, the gas cartel that captured the Morrison Government has priced itself out, the NSW government has recognised this basic fact, and has launched a sensible policy to smooth the transition to newer and cheaper renewable technologies instead.

The Morrison Government gas-led recovery has collapsed into NSW’s renewables-led recovery and Angus Taylor is exposed as a fossil-fool.

David Llewellyn-Smith
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Comments

  1. Focusing on the gas price in $/GJ is your fundamental, and consistent, error. If it is being used for peaking/firming service then the capital cost per MW is far more critical.

    • So at peaking durations of say 5% (remembering that historically combustion turbines have done less than 1%) just how significant is the cost in $/GJ?

        • Renewables with batteries are already cheaper than gas for peaking.

          Maybe so. I have no beef with that. My focus is correcting the error of assessing peaking options based on the cost of their fuel. If fuel cost was ever the most significant factor utilities never would have built fleets of OCGTs, reciprocating engines etc. Instead peakers tend to be cheap on a $/MW basis.

          • Largely agreed. That’s why when I hear people talk about using Natural gas as a low capacity factor peaking/long storage fuel it doesn’t make sense to me. I think hydrogen which won’t be much more expensive by 2030 will win over it

    • Arthur Schopenhauer

      But they don’t want to use it as peaking firming service. They want to use gas as a primary energy supply, unless you think coal will serve Australia for the next 50 years.

      • No they don’t. They are talking about open cycle gas turbines not combined cycle. That in itself tells you it is firming they are looking for – not bulk energy.

  2. “Renewables plus partial storage is already cheaper for power than today’s prices for coal and gas”

    right, until the partial storage is sucked dry after an hour of base-load demand, and the gas is required to keep the lights on…

    Renewables plus partial storage is not a valid replacement option for base-load power generation… Renewables require many GWh of battery storage to enable them to be classed as base-load capable, and well, the economic viability for this as a credible solution doesn’t yet exist!

    Brushing aside the engineering and economic challenges of transition to renewables would be foolish. https://www.mdpi.com/1996-1073/13/18/4839

      • TheLambKingMEMBER

        https://www.mdpi.com/1996-1073/13/18/4839

        Wow. A reference a peer reviewed paper! It is a good paper – but it is ‘this is what has happened’ and extrapolated it. But it ignores the extreme falling costs of batteries and solar (and to a lesser extent wind.) And these type of ‘it will never work’ papers assume that technology never changes. It argues that there will be will never have enough Cobolt or lithium – ignoring the demand will drive the discovery of more sources or extraction techniques or the development of non-lithium or non-cobolt batteries.

        Thanks. It was a good read. I did learn a few things out of it. And it makes a number of very good/interesting points. But it did have a ‘Can you write a paper to say why fossil fuels will have to be used forever’ feel.

    • Meh, you only need about 3-4 hours to cover all possible contingencies once the network is integrated and widespread enough. Always good to have a bit of gas in your back pocket but it only needs to be a bit in the long run.

      • “3-4 hours” … yeah, show me how good your solar panels and wind farms are on a still night and I’ll show you why 3-4 hours wont cut it on a renewables-only grid, not even close….
        Don’t confuse grid stabilisation with full battery back-up that provides base-load for extended periods of time when renewables lie dormant.
        This is why you need GWh capacity, and quite a few GWh’s at that. You have failed to grasp the engineering challenges outlined at my link. It is a detail that you would benefit from comprehending.
        Changing out the entire grid generation will only be viable over a decade or more – gas is the bridge fuel that gets us there, and we’re going to need quite a bit of it for a decade or two or three yet. Fundamentally, that’s why domestic reservation matters for Australia, because short of accepting nuclear (or more coal!), no other generation option will be a viable bridge to get us there

        • Display NameMEMBER

          Solar is already pushing prices negative during peak generation hours. Push this power into pumped hydro an it will get a positive price and provide another battery source.

          • Its a great contribution, but pumped hydro is viable in only limited geographies in limited locations… its never going to support base-load generation from renewables on its own nation-wide… Australia is simply too flat, and has little public/political appetite to dam more rivers

          • great contribution, excellent information. I’ll be sure to take all of that on board professor steve

  3. Angus Taylor is most certainly a fool. If NSW can expose the fed’s treasonous failure to reserve gas for the domestic market, then props to them… the best outcome for Australia would be a domestically-reserved quota of gas to complement the build-up of renewables capacity over the next decade or two… The nation’s advantageous endowment of abundant natural gas continues to be squandered by the federal government, at the expense of all Australians and future generations…and we’re talking billions of dollars of foregone prosperity here

    • Angus Taylor doesn’t reply to an email sent from a person outside his electorate so it think it is only fair that I declare he is not my Energy Minister.