Australia Launches Gas Strategy to Revitalize Power Sector

In a bid to spur economic activity and thwart a COVID-19–related downturn, Australia’s government in September set out a strategy to reset domestic power and gas priorities to tamp down power prices and generally address a lack of private sector investment in power production.

The “Gas-Fired Recovery” strategy, unveiled by Prime Minister Scott Morrison on Sept. 15, is a notable move for the nation that continues its reign as world’s largest coal exporter, and which this July also overtook Qatar to become the world’s largest exporter of liquefied natural gas (LNG). At home, however, private sector investment in dispatchable power has screeched to a halt.

Pushing Private Sector Investment

As Morrison noted in a September speech, since the 2.1-GW Liddell coal-fired power station in New South Wales (NSW) announced it would close in 2023, no new major power projects have been announced by the private sector to replace its capacity. However, a government task force recently warned that closure of the plant could lead to a 30% surge in electricity prices over two years, and if no backup capacity is created, prices could soar by A$20/MWh ($14.63/MWh) in 2024, an increase that could put power prices at A$80/MWh ($58.50/MWh). By 2030, prices would continue increasing to A$105/MWh ($76.78/MWh), it said.

Power prices in the nation have been inching upward, mainly because the Australian domestic industry has been paying a higher price for gas than that being offered for LNG exports, but also because renewables have taken a larger share of its total generation. In 2019, while the nation relied on coal for more than half (56%) of its total generation, 21% of the remainder came from gas, and another 21% came from renewables (7% from wind, 7% from solar, and 5% from hydro). COVID has depressed power consump tion and sent prices tumbling, and the National Electricity Market (NEM) suggests that renewable investment remains low. However, it maintains projections that renewables are on track to make up 75% of all generation in Australia by 2040, driven largely by state renewable energy targets. Because the shift is mostly expected to occur starting in the mid-2020s, Liddell’s inevitable closure and assumed growth in energy consumption is expected to exacerbate prices.

Morrison gave the private sector until the end of April 2021 to reach final investment decisions on 1 GW of dispatchable capacity, with a commitment for generation in time for summer 2023–2024. “However, if, by the end of April 2021, the private sector has not delivered on the target, the government will take necessary steps to ensure the required dispatchable capacity is built,” he said. To that end, “while the Commonwealth Government would prefer not to step in,” if the market did not deliver, integrated energy provider Snowy Hydro Ltd. will develop options for a government-owned gas generator based at Kurri Kurri in NSW’s Hunter Valley, he said.

Australia’s future energy mix is certain to look different, Morrison acknowledged, though he suggested coal “will continue to play an important role” in the country’s economy for decades to come. In domestic power markets, coal will likely still comprise a quarter of the market by 2040, possibly equipped with carbon capture and storage, he said. “It will have an even longer life, not just here in Australia, but in our export markets as well.” And while he underscored renewables’ place in helping Australia meet its carbon reduction targets by 2030, he also noted more firming capacity was necessary.

4. EnergyAustalia’s 435-MW Tallawarra gas-fired station in New South Wales is a combined cycle station with fast-start capability. The plant, which came online in January 2009, replaced a 320-MW coal-fired power station that operated between 1954 and 1989. Courtesy: EnergyAustralia

“Firming keeps the lights on when the sun isn’t shining and the wind isn’t blowing. It’s a very practical proposition. Every megawatt of dispatchable generation—coal, gas, pumped hydro batteries—can firm around 2 MW of renewables.” However, though 9.6 GW of dispatchable capacity came online in the decade to 2010 (Figure 4), over the last decade, “only around 1.6 GW of new dispatchable capacity has been connected, none of it here in New South Wales,” he said. The risks “in terms of costs and reliability from the exit of large, aging coal-fired power stations are real,” he underscored, pointing to the 2017 blackouts in Victoria. That’s why alongside firming capacity, the government would work with states to accelerate three “critical” transmission links through a A$250 million program: the Marinus Link, Project Energy Connect, and VNI West Interconnectors.

Finally, the government will boost development of a thriving domestic gas market, Morrison said. “Our competitive advantage has always been based on affordable, reliable energy. As we turn to our economic recovery from COVID-19, affordable gas will play a central role in re-establishing the strong economy we need for jobs growth, funding government services and opportunities for all,” he said.

As part of the strategy, the government will set new gas supply targets with state and territory governments, and encourage those governments to include and enforce “use it or lose it” requirements on gas exploration and production licenses. Pivotally, government will also move to create a “Gas Hub” at Wallumbilla in Queensland, based on the U.S’s Henry Hub system, and invest in pipeline and infrastructure development, and export agreements to prevent shortfalls in dispatchable power, and promote competitive and transparent gas pricing.

Additionally, the government will accelerate gas exploration and development in priority areas, including the Beetaloo Basin in the Northern Territory and Queensland’s Northern Bowen and Galilee Basins, he said. In an effort to boost competition and transparency, the government will also reform regulations on pipeline infrastructure, and implement a voluntary industry-led code for negotiation of gas supply contracts to equalize the negotiating position for gas consumers. Finally, the prime minister also said that work is “underway on options for a prospective gas reservation scheme.” If implemented, industry observers said, the plan will likely regulate domestic supply as well as gas exports to ensure that Australian gas users obtain the energy they require at a reasonable price.

—Sonal Patel is senior associate editor for POWER.