Bring gas into Labor’s energy investment tent: resources lobby sounds warning

Labor faces fresh calls to include gas in its Capacity Investment Scheme which will see the government underwrite 32 gigawatts of renewable energy and storage capacity by the end of the decade.

Natural gas 'should never have been left out of the Capacity Investment Scheme', the nation's peak oil and gas lobby says.

The nation’s peak oil and gas lobby and energy experts say gas should be included in Labor’s Cap­acity Investment Scheme to firm-up renewables and help bring down energy costs while avoiding power shortfalls and blackouts.

Australian Energy Producers chief executive Samantha Mc­Culloch told The Australian natural gas “should never have been left out of the Capacity Investment Scheme”, which will see the government underwrite 32 gigawatts of renewable energy and storage capacity by decade’s end.

Ms McCulloch spoke out after the energy market operator in June issued a “threat notice” that gas supply on the east coast could be inadequate to meet demand until the end of September.

She said the government had “no policies” to support gas investment, despite the Australian Energy Market Operator finding the national electricity market would need 12.8GW of new gas-powered generation to be built by 2050 in its recent Integrated System Plan.

“Failing to invest in new gas supply and gas-fired power generation capacity will risk gas short­ages and blackouts and push energy prices up for homes and businesses,” she said.

“All the evidence shows that renewable energy backed up by gas-powered generation will deliver the lowest-cost electricity to homes and businesses as we transition to net zero.”

Energy program director at the Grattan Institute Tony Wood told The Australian he thought it was a “great pity that the Capacity Investment Scheme – the 23GW of renewable capacity and 9GW of storage – explicitly excluded gas”.

He said there would be a need for more gas peaking plants over time, arguing that the “original idea of a capacity investment scheme” was to drive greater ­reliability or “dispatchable ­energy” in the system. “Around the world, I don’t think anyone would have a capacity mechanism that would exclude gas or even diesel,” he said.

“Under a capacity investment scheme, you’ve already got some gas contracted to be there. It’s most likely going to be better than having to call on gas in an emergency … It’s no different from taking out insurance.”

Opposition energy spokesman Ted O’Brien argued that the ­Energy Security Board had tried to recommend a capacity mechanism back in 2022 that “recognised the vitally important role played by gas” but said this was not a direction pursued by Labor.

Under the Capacity Investment Scheme, competitive tenders are held about every six months.

Climate Change and Energy Minister Chris Bowen on Monday said 40GW of projects had competed for only 6GW of capacity in the first auction under the scheme.

Mr Bowen said the scheme was designed and modelled to achieve the 82 per cent renewables target by 2030 and he had “no doubt” it would be achieved.

“If we needed a sign that it was going to work, the figures we put out last week are that sign,” he said at a Carbon Market Institute event. “Six gigawatts worth of an auction, 40 gigawatts worth of bids – a bit more than six times what we were after.

“That shows me the projects are there, they just need the right regime and the Capacity Investment Scheme is the right regime.”

As the climate wars between the major parties heat up ahead of the next election, Mr Bowen accused Peter Dutton of sending a negative signal to investors about what a change of government could mean.

“I haven’t seen any evidence of anybody pulling out of investments in Australia as a result (of the Coalition nuclear policy) … but it has been raised with me as a concern. There are things that I’ve done as minister that I didn’t particularly agree with, but the previous government had entered into arrangements which are honoured, because I respect the need to avoid sovereign risk.”

Ms McCulloch said the Victorian government was the major holdup to including gas in the Cap­acity Investment Scheme. “Victorian gas power demand in June was higher than for the entire winter of 2023, and this demand will only grow as coal retires,” she said. “Yet the Victorian government … most strongly opposed inclusion of gas in the Capacity Investment Scheme.”

Director of climate change and energy at the Australian Industry Group Tennant Reed said “making gas peakers investable will help ensure a largely renewable electricity system is as reliable as industry needs and households expect.”