Author Gilles Walgenwitz
Date November 2016
In an interview with the ABC on Friday 4 November, Energy and Environment Minister Josh Frydenberg discussed the importance of gas in power generation and its value as a lower emissions fuel than coal fired power, stating, “I would like to see more gas into the system and hopefully after (the Hazelwood) announcement we'll see more investment in gas fired power”.
But as reported in an earlier article, Energetics has seen an alarming reduction in the number of gas retailers willing to bid to supply high volume, long term contracts for large industrial and commercial businesses – particularly in the food manufacturing sector. Competition is drying up as gas supply shrinks.
We have seen only two and in some cases, just one retailer prepared to tender to supply gas ready for 2017. This is particularly the case in NSW and SA. To put this into perspective, tenders for the same clients one year ago saw three or four retailers compete to supply.
Gas supply challenges will compound with the closure of ageing, inefficient coal fired power stations such as Hazelwood, as gas fired power will rise in the merit order for bidding in the wholesale electricity market. As a result, the future price of electricity will be increasingly linked to the future price and supply of gas.
Gas supply is an essential service
Australia’s energy markets are changing rapidly. Growth in renewable energy generation will continue at pace driven by many factors – increasing affordability, climate and emissions reduction policies, support from institutional investors for clean energy (with corresponding plans to divest from coal fired power assets), and rapid technological innovation in energy storage, electric vehicles and decentralised micro-grids. New forms of energy will come on line with solar thermal energy generation, biomass and biogas set to penetrate the energy mix – some at utility scale, some generated on site by businesses.
So even if the current supply issues can be quickly resolved and more gas brought on line, Australia’s energy markets are on a path that will see them become vastly more complex in the not too distant future.
There are many federal and state government bodies with different responsibilities for the supply of gas to the market. Yet the current challenges suggest that oversight of the operation of the gas markets is deficient. This is an issue requiring the attention of the government, whether through an expansion of the terms of reference of the Finkel review or another mechanism.
The issues with gas pricing and supply, and their direct relationship to electricity pricing, link back to the conclusions we drew in our article ‘Paris Climate Agreement commitments, decarbonising energy supply and ensuring energy security - Australia needs a pathway to achieve all three’. Australia’s energy transformation can either be overseen and managed with minimal disruption and a clear vision for the role of different forms of energy in the prosperity of our economy, or a process of learning through very expensive mistakes with supply failures and continued market volatility.