Australian utilities and market experts have grown more vocal about the need for federal and state governments to support existing and future gas-fired power generation, as the country phases out coal-fired plants and transitions to a system with more renewables.
The current lack of incentives could be worsened by potential distortions stemming from the federal government's Capacity Investment Scheme (CIS), which will support 32GW of new renewable capacity and storage but excludes gas, delegates heard during the Australian Energy Week 2024 organised by Quest Events in Melbourne last week.
"If you're only supporting new renewables and you don't take care of existing gas assets, you run into trouble," utility Engie Australia and New Zealand's chief executive Rik De Buyserie said. While "hugely positive" for renewables, the scheme will "add headwinds to the business case for keeping gas-fired assets in market," he warned.
Engie earlier this year decided to close two diesel-fired power plants in South Australia (SA) — the 75MW Port Lincoln and 63MW Snuggery — as they were not economical in an environment of rapid solar and wind penetration, which "raises questions on the future reliability of the system," De Buyserie said. South Australia has brought forward its 100pc renewable energy target by three years, to 2027 from 2030, although noting that gas-fired plants would need to continue to back up the system.
Infrastructure group Atco, which operates a gas distribution system in Western Australia (WA), as well as gas-fired plants in WA and SA, has been running one of its units more flexibly, even though it was originally designed to operate as a base-load facility.
"We've made some technical adjustments. But it really puts a lot of pressure on the machine. And starting and stopping it two or three times a week will increase the wear and tear," Atco Australia chief executive John Ivulich said. "We can do it for a period but it's not sustainable."
There is a "growing awareness" of the importance of gas in the reliability of the electricity system for consultancy McKinsey partner Victor Finkel, which was underlined by the federal government in its long-awaited Future Gas Strategy. But incentives for long-term investment, if any, are yet to be developed.
The Australian Energy Market Operator estimated in its draft 2024 Integrated Systems Plan that the National Electricity Market will need 16.2GW of gas-fired capacity by 2050, up from the existing 11.2GW, as coal-fired generation is phased out in the next decade. Around 8GW of existing gas-fired capacity is forecast or announced to retire and will need to be replaced, while 5GW of new capacity will need to be added.
Support mechanisms
Lobby groups, such as the Australian Energy Producers and the Australian Pipelines and Gas Association, have been calling for support mechanisms for gas-fired generation, which could be done by including the technology in the CIS or developing alternative schemes that provide long-term investment signals.
The market will "definitely" need capacity mechanisms to support gas-fired peaking plants in the long term, as there is currently no market signal for new investments, according to the director of the Gas and Energy Transition Research Centre at the University of Queensland David Close.
"As long as that is not fixed, I would struggle to see new gas-fired capacity coming on line," De Buyserie summarised. "It's just too risky based on merchant revenues."
