Greens kill coal for new power generation; now their foot’s on gas

NSW Energy and Environment Minister Matt Kean. Picture: Bianca De Marchi

As orange is the new black, gas is the new coal.

Having seen off coal as a source of new electricity generation, the green-left warriors are turning their arrows towards gas. Any form of energy other than subsidised renewables, batteries and some pumped hydro must be demonised. One group of radicals even wants to ban gas stoves and gas hot water.

Here are their well-rehearsed lines: Gas is a fossil fuel like coal; taking into account (mostly imagin­ary) fugitive emissions, the emissions from gas are barely lower than coal; renewable energy is the cheapest power generation; gas is expensive; and, the last thing Australia needs is a gas-led recovery.

Luckily for the country, Scott Morrison and his able ministers, Angus Taylor and Keith Pitt, are ignoring the wailings of Guardian Australia journalists and their small band of supporters.

They are supported by some state parliamentarians including NSW Energy and Environment Minister Matt Kean, the Liberal member for Hornsby. Word is Kean was very upset when the Narrabri gas project was conditionally approved by the NSW Independent Planning Commission.

“Gas may be useful in the short term but the economics don’t stack up,” he said. “We should be making decisions based on the economics and gas is a hugely expensive way of generating electricity.”

This flies in the face of the Berejiklian government’s deal earlier this year whereby $2bn from the federal government was accepted in exchange for NSW guaranteeing 70 petajoules a year of additional gas for domestic use.

So Kean is happy to accept the money but wants to forget the gas side of the deal, particularly if it’s to be sourced from NSW rather than imported. To demonstrate how out of touch Kean is, there are power contracts doing the rounds in NSW using renewable energy plus battery backup.

On the face of it, these contracts appear to be cheaper than the ones using renewable energy plus gas peaking backup. But reading the fine details, it is clear the risk vests with the customer and after the batteries have conked out after two so hours, there is every chance that the maximum price of $15,000 a megawatt hour will be charged.

This is a very bad deal and this risk needs to be emphasised in relation to these contracts. Indeed, there may be a case for regulatory insistence of full disclosure.

Mind you, there is plenty of implicit opposition to gas among bureau­crats. The Australian Energy Market Operator’s recently released Integrated System Plan was based on ludicrously high gas prices and a failure to account for possible cost overruns of new transmission.

It was only in this way that AEMO could conclude that even more renewable energy and expensive additional transmission should be the basis for replacing coal-fired power stations.

A key challenge for the electricity system is the foreshadowed closure of the Hunter Valley’s coal-fired Liddell Power Station. Owned by AGL Energy, the plant will cease to operate in April 2023, its life having been extended only slightly. The last thing the federal government wants — and this should concern all the states and territories — is a repeat of the 2017 closure of the Hazelwood power station in Victoria. A year later, average spot prices were between 32 per cent (South Australia) and 85 per cent (Victoria) higher. The federal government is keen to avoid this with Liddell.

So the federal government has announced its intention to invest in a 1000MW gas-fired plant (via Snowy Hydro) to ensure adequate supply, but only if the private sector doesn’t step up. The decision is based on the likely shortfall in capacity, particularly in respect of fully reliable electricity, at the time of Liddell’s closure and in the years to come.

This announcement has led to some consternation. Why is the government directly investing in electricity generation? Why is the government picking gas as the fuel? Now, in a competitive market, the prospect of insufficient supply to meet demand would prompt investment to bring forward supply.

But in the case of our major electricity companies, most of which are both generators and retailers, they act as oligopolists given their substantial market shares in the various state markets. And they do what oligopolists rationally do — they restrict supply to drive up prices and profits.

That these large companies earn above average returns on equity for their generating businesses is consistent with this market structure.

You need only observe the time it takes these companies to assess and make final investment decisions on any initiative to increase generating capacity. Energy Australia has been sitting on its hands over the 300MW gas-fired Tallawarra B plant. And several of the big players have been faffing about for years in relation to importing gas to the east coast.

It also is dawning on these companies only now that they must ensure reliability and grid stability, both of which previously were delivered to them effectively free of charge.

The federal government recognises weaknesses in the gas market beyond electricity generation. There are structural problems in relation to some of the gas producers and the regulation of the pipelines. The key aims of policy are to increase supply to the eastern states and ensure gas price falls in line with global prices.

To this end, there has been a number of policy initiatives: a Nation­al Gas Infrastructure Plan to work out appropriate investments in the gas transport network; the establishment of a gas hub at Wallumbilla in central Queensland to encourage a spot market; renegotiation of agreements with east coast gas exporters to secure more domestic supply at reasonable prices; and the support for the development of new gas basins, including Beetaloo in the Northern Territory.

The bottom line is that a gas-led recovery makes sense. It is the obvious complement to renewable energy by firming up capacity. There is little doubt that household solar photovoltaic installations will continue to grow.

Gas is also a necessary or desirable direct feeder stock to manufacturing. Its greater use at world competitive prices can be one plank underpinning the restoration of our manufacturing base and to secure supply chains.

And just in case you remain unconvinced, check out what has been happening in California recently with multiple blackouts and insufficient gas generation to make up for the inevitable failures of a system too reliant on renew­ables.