Is gas-powered electricity still relevant?

Gas-powered electricity is expected to maintain a significant market share in Australia’s energy mix even as renewable energy continues to edge out coal.

EnergyQuest noted that in 2020, there was an increase in renewable energy generation both in the National Energy Market (NEM) on Australia’s East Coast and in Western Australia.

This resulted in a drop in both coal and gas generation, though coal retained a 67 per cent market share in the NEM while renewables accounted for 19 per cent.

Coal’s continued fall from grace is in line with the Australian Energy Market Operator’s Integrated System Plan that forecasts coal-fired generation to decline from the current 23 gigawatts to 9 gigawatts over the next two decades.

The decline may well occur sooner as coal-fired stations become increasingly unprofitable.

Over in WA, coal generated power fell by 9.7 per cent to 38 per cent of the energy mix while renewables climbed by 20.4 per cent to 24 per cent market share. Gas’ share remained stable at 38 per cent.

The case for gas

However, other jurisdiction highlights why gas powered generation still has a role to play for some time yet.

Over in South Australia, renewables supplied 59 per cent of its electricity generation, while gas took the place of coal with 41 per cent of the market.

While the AEMO has noted that the state’s total solar output was equal to its entire underlying demand, a world-first for a jurisdiction of its size, South Australia’s gas-fired generators remained online as they are necessary for system security with excess power exported into Victoria.

More generally, gas-powered generation in South Australia increased in 2016 following the closure of the Northern Power Station in May 2016 with the same occurring in Victoria following the closure of the Hazelwood Power Station in March 2017.

EnergyQuest says the same is likely to happen in NSW following the closure of Liddell in April.
2023.

Additionally, the lower utilisation rates for renewable energy means that a massive increase in capacity will be required to replace coal in the NEM.

Because of this, work done by Frontier Economics indicates that by 2035, a NEM that is 93 per cent renewable energy and 7 per cent gas powered generation will be 36 per cent cheaper to run compared to one that is 100 per cent renewable.

The same pattern can also be seen in the European Union where countries with high penetrations of variable renewables and low use of coal tend to have high gas penetration.

Germany, Italy, Span and the UK all have more than 20 per cent renewable energy market share while the share of coal ranged from 2.1 per cent in the UK to 28 per cent in Germany.

The lower the share of coal in these countries, the higher the share of gas from 14.9 per cent in Germany to 40.9 per cent in the UK.

Supply shortfall

Despite this, there is a risk of a gas supply shortfall to meet gas-powered generation.

The ACCC has noted that while supply is expected to meet demand in 2021, a shortfall of as much as 30 petajoules may arise by 2024 in the southern states while the broader east coast gas market could face a shortfall in 2026.

WA has also warned of a possible tight gas supply situation in 2029.

This has been highlighted by significant reserve writedowns at the Reindeer and Pluto fields.