But large-scale utilisation of gas for central power generation is not the way that our gas resources should primarily be deployed, and here's why:
Australia's economy is about 10 per cent thermally efficient. That means that for every unit of energy that provides an end-use service like cooked food or warm water in the bath, fuel containing about 10 units of energy must be dug up.
One of the largest sources of this waste is the central power industry. We dig up coal (and lose methane as a pollutant), transport the coal to the power station, waste more than 65 per cent of the energy remaining as low-grade heat to the atmosphere or waterways, and then lose another 5-7 per cent of the power generated in transmitting and distributing the electricity to the end user.
Furthermore, this central power supply infrastructure is enormously expensive to maintain. We are suffering up to 20 per cent annual electricity price rises from the $45 billion of investment being made over five years to maintain, expand capacity and improve reliability of the transmission and distribution system alone.
The prevailing plan is merely to use gas to directly replace coal in this grossly inefficient central power supply model. It is true that gas can also be used in central combined-cycle power plants with 50 per cent efficiency, instead of 35 per cent, but we are also seeing simple cycle gas turbines being installed to meet peak demands with barely 25 per cent efficiency. Central power is simply not a sustainable model for a low-carbon economy.
Apart from being inefficient, central gas power will also be expensive, as it is expected that gas prices on the eastern seaboard will ultimately trend up towards international parity pricing, once the three large LNG plants are completed in Queensland for the export of coal seam gas. The availability of gas supply into the domestic market at reasonable prices is being called into question by this development, and just two weeks ago, the Queensland government passed legislation to attempt to quarantine sufficient gas for the domestic Queensland market, but at what price? There are already complaints in Queensland that businesses seeking longer-term gas contracts are finding it hard to source gas at prevailing market prices.
What is the right way for us to be utilising our gas resources? The answer is decentralised energy services. What I mean by this is utilising the gas by generating power near the end-user and using by-product heat for useful purposes. This is called cogeneration and can be produced large scale, e.g. in food processing or paper plants using a gas turbine or a gas engine, with the heat being used to generate hot water or steam for the process. It can also be produced in commercial buildings, using a gas engine or a fuel cell, with the heat being used to heat water and also generate chilled water, or in highly efficient direct heating/cooling technologies like gas heat pumps.
Cogeneration can even be used at small scale, right down to using a fuel cell at an individual house. Imagine having a refrigerator-sized, silent device that can generate power and hot water 24 hours a day at over 80 per cent efficiency, with 75 per cent lower greenhouse gas emissions than buying electricity from the central grid. You can also be independent of power companies.
Many countries such as Japan, Korea and Germany are already planning for mass rollouts of cogeneration down to residential level.
So, are we utilising these decentralised gas technologies? Australia is the lowest user of cogeneration of any developed non-nuclear country in the world, with only five-six per cent of electricity generated from these sources, compared to more than 30 per cent in countries where it is best utilised. We barely use other high efficiency gas technologies. The Energy Efficiency Council has targeted 3000MW of new cogeneration capacity to be installed by 2020. But this is just the tip of the iceberg in the carbon mitigation that can be achieved using decentralised gas technologies.
A key reason for our low use of distributed gas technologies to mitigate carbon emissions is that our utility regulatory system is skewed to support the needs of the central power system and against distributed gas and energy efficiency. For example, our network regulations seem designed to make it difficult for connection and fair recompense for feed in power. The regulatory structure needs to be changed to provide incentives for the distribution network providers by connecting decentralised energy and investing in demand management. The gas supply industry is not helping the cause, by refusing to offer long term gas contracts at reasonable prices. It appears that the gas supply companies are conserving gas to sell at higher prices into the export LNG market once the new LNG plants are completed.
The global challenge to reduce carbon emissions means that we need to stop as much carbon getting into the atmosphere at the lowest cost/tonne. Another market anomaly introduced by government is to treat solar and other ‘renewables’ differently than other carbon mitigation technologies. Surely all technologies for reducing carbon emissions should be treated on a level playing field based on their cost per tonne of emissions reduction? On this basis, there would be a sliding scale for incentives including feed-in tariffs based on the effectiveness of carbon emissions.
This anomaly is seen clearest when we look at a new technology like fuel cells. These can convert hydrogen or natural gas to electricity at up to 50 per cent efficiency 24/7 (and in cloudy weather), with the waste heat available for water and space heating. In these applications, emissions reductions of more than 75 per cent can be achieved compared to buying grid power. Under current regulations these installations get no access to renewable energy certificates, feed-in tariffs or any other incentive if they use natural gas. However, if they use biogas from a waste source or hydrogen from a solar source, then by making the final 25 per cent emissions reduction they suddenly gain access to renewable certificates.
I am strongly advocating the development of policy which rewards decentralised gas technologies based on their very substantial and economic carbon mitigation. This requires a rational and integrated policy to preferentially encourage cogeneration and to immediately address existing electricity industry regulation to support connection and two-way flow of electricity from these installations. Alongside energy efficiency, this should be a priority in government climate policy.