No amount of government subsidies can stop the decline of gas


Today, the early shutdown of the Yallourn coal-fired power plant in Victoria was announced. The shutdown comes four years ahead of schedule and indicates the rapidly changing economy of power generation in Australia.

Simply put, more expensive coal and gas cannot compete with cheaper renewables.

EnergyAustralia has announced that Yallourn will be replaced by a 350 megawatt (MW) “giant battery” which is expected to be completed by 2026, with four hours of storage. Batteries replace coal, not gas.

And yesterday it was discovered that the Australian government had turned to the Boston Consulting Group to devise a plan to distribute hundreds of millions of dollars in gas scavenging money.

These generous subsidies, whatever their distribution, will apply to a declining industry that will not stimulate the economy.

The fall in the wholesale price of electricity is blocking gas-fired electrical assets.

The boom in cheap renewables has put pressure on wholesale electricity prices.

Future base electricity prices in Victoria fell last year from over $ 80 per megawatt hour in March 2020 to $ 24 in March 2021.

Gas just cannot compete at such low prices.

Net zero commitments are changing export markets

As Australia drags the chain of net zero climate change commitments and has sparse plans to cut emissions, its trading partners are quickly adopting strong and ambitious targets.

There is a glaring and growing realization that the gas (and pipeline) industry has underreported its emissions, with gas actually being a high greenhouse gas emitting fuel that is worse for the climate. than coal in the short term.

High greenhouse gas emitting methane does not fit well with new net zero emissions policies recently announced by Japan, China and South Korea.

What exactly this means is still in its infancy, but it is clear that over the next decade gas will need to be phased out from most of its uses.

The gas industry is compressed globally

In Europe, a taxonomy has been introduced which effectively means that gas works can no longer be built for the production of electricity. (A taxonomy is a classification system that provides definitions to companies, investors and policy makers on which activities can be considered environmentally sustainable). European taxonomy may well be adopted globally.

A carbon tariff system is also in place in the United States and Europe.

In the UK, UK utility Drax has scrapped plans to build the country’s largest gas generator in Yorkshire following fierce opposition from climate groups.

There is a renewed vigor on climate change policies by the United States that will bring about global change. Democrats have set an ambitious interim target of 80% clean electricity by 2030 and 100% by 2035.

And China, the world’s fastest growing source of gas demand, is looking to achieve net zero emissions by 2060.

Technology usurps the gas

What is perhaps more concrete than political commitments to reduce emissions, however, is the rapid advance of technology.

Essentially, gas is being supplanted in two of its main demand sectors, home heating and cooking, and gas-fired electricity generation.

In Australia, it is cheaper to heat your house with a heat pump (electric air conditioner), more efficient to heat water with a heat pump system and its stove with an induction hob. The efficiency gains of heat pumps make gas uncompetitive as a household fuel source.

Australian gas consumption is down 21% since 2014, due to the decline in gas-fired production.

Gas consumption in gas-fired power plants decreases rapidly – by 58%[1] since 2014, while renewables have increased to produce 28% of the energy in the national electricity market. Essentially, as renewables have increased, gas consumption has decreased.

Gas is not serving as a transition fuel, it is rather a fuel leaving the energy system

The disappearance of gas as a fuel for the production of electricity is accelerated by the development of batteries on the scale of the network. Batteries hit a tipping point before September 2020, when their cost reductions suddenly made them competitive as a substitute for gas power plants.

A wave of grid-wide battery projects ensued.

At the time of its construction, the Hornsdale Big Battery in South Australia was the largest grid-scale battery in the world with 100 MW / 129 MWh. It has since been expanded to a size of 150 MW / 193 MWh.

Since November 2020, there has been a flood of new battery projects proposed for Australia totaling 3,000 MW. The largest is CEP Energy’s 1,200 MW power plant in the Hunter Valley, about 12 times the size of the large Tesla battery in South Australia.

Very different from the long development schedule for gas infrastructure, batteries are quick to deploy. The 300 MW Neon facility announced in November 2020 has already reached financial close and will be operational by the end of 2021.

All of the proposed large battery projects have land and grid connection points, which makes their completion more likely.

In the short term, large-scale batteries will not entirely replace gas. However, they will take the cream out of the market and reduce the profitability and use of gas.

With the gas dying out and the batteries picking up again, it is highly unlikely that gas-fired power plants will be built again by the private sector in Australia.

While politics, emission targets, carbon prices, and taxes will all play an important role in the decline of gas as a global fuel source, it is technology that will ultimately decide. account of its fate.

As with all technological disruptions, they usually happen faster and are far more brutal than their most ardent supporters expect.

Whimsical consultants may appear to put the government at a distance from its gas subsidy program.

The markets are telling Australians, however, that this is money wasted on a declining industry.

[1] AEMO. Forecast of natural electricity and gas.

Bruce Robertson is a Energy finance analyst with IEEFA.

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