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AGL kills idea of gas as transition fuel: wind, solar + storage cheaper

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Australia’s largest integrated energy company, AGL Energy, says Australia’s transition away from a coal power dominated national grid to low-carbon generation will largely bypass “baseload” gas, and instead shift straight to large-scale wind and solar.

The annual report of AGL is seen at the Melbourne Recital Centre following the company's AGM in Melbourne, Wednesday, Sept. 30, 2015. (AAP Image/Julian Smith) NO ARCHIVING

As politicians and the gas lobby expend considerable energy over the need to guarantee supply of gas, the company founded some 180 years ago as The Australian Gas Light Co, says the combination of wind and solar and battery storage is already cheaper than new gas generators.

“The energy transition we have all been anticipating will skip ‘big baseload gas’ as a major component of the NEM’s base-load generation and instead largely be a case of moving from ‘big coal’ to ‘big renewables’,” AGL CFO Brett Redman says in a presentation to the Macquarie Australia Conference in Sydney on Tuesday.

The frank prediction – which flies in the face of Prime Minister Malcolm Turnbull’s plan to subsidise the delivery of more gas into Australia’s electricity market – is based on the now fairly well accepted economic view that gas power will continue up the cost curve, making it less and less competitive with large-scale solar and wind.

Redman says that based on AGL’s latest analysis, the levelised cost of wind generation is currently at about $A65/MWh and the equivalent cost of solar is about is around $75/MWh.

And while that cost increases to about $100/MWh for wind and $125/MWh for solar when you add gas peaking to balance the renewables output, it still beats the cost of using gas outright, for baseload generation.

Indeed, according to AGL, the price of new baseload gas sits at between $100-$130/MWh – and “that’s not including a carbon cost,” Redman adds. And wind and solar costs, along with battery storage, continue to fall dramatically.

“On these numbers, it’s easy to see how, in an environment where the cost of renewables is falling and the gas price is high, a long-term investment case for baseload gas might not stack up,” Redman told the conference.

“In Australia, this points to gas having a near-term role to continue to firm renewables via gas peakers – but not being the lowest cost replacement for baseload coal,” he added.

“The market already demonstrates this view.”

And indeed it does. As more an more of the world’s big investment dollars – including from Macquarie Group itself – are poured into large-scale renewable energy projects, fewer and fewer are being invested in new gas and coal, despite the Australian federal government’s best efforts to counter that trend.

And that view is also demonstrated in the prices of deals being done. As we reported here, Tony Concannon – the former head of the now-retired Hazelwood coal power station, and current head of Reach Solar Energy – cites a quote given to the company for a large solar farm (100MW) with a significant amount of battery storage.

“Reach received estimates in late December 2016 for solar PV and energy storage (40MWh to 100MWh) which translated into a tariff between $110/MWh to $130/ MWh,” Concannon wrote.

“This is already competitive with gas-fired CCGT and costs are expected to reduce further.”

But where AGL’s view of the not-too distant future NEM differs from others is in the division between “big renewables” and distributed energy resources like rooftop solar and storage.

While other major analyses on the subject see rooftop solar being a major contributor to the future renewables mix – the CSIRO-ENA Electricity Network Transformation Roadmap, for example, has forecast 80GW of installed rooftop solar by 2050, alongside 97GWh of battery storage – AGL’s forecast is for a total of 15GW by 2050.

BrettRedmanAGL

AGL Energy CFO Brett Redman

“Rooftop space is limited compared with demand, so while rooftop solar will deliver some of what is needed, the majority still looks like coming from grid-scale installations,” Redman explained to the conference.

That difference might simply be a case of wishful thinking on behalf of each party. The networks, because everyone will need to share whatever generation they are producing or importing, are convinced everyone still needs poles and wires, and may have less need for “gentailers” like AGL.

And AGL, of course, wants to think that even if coal and gas generation does not amount to a significant share of future power supply, it will still be intimately involved in centralised generation of some sort, even if it’s as back-up for wind and solar. The reason for that is maybe that it hasn’t quite figured out the business model when most of supply come from the consumers.

Interestingly, documents released by the Victorian government detailing its $25 million grid-scale battery storage tender have an even less optimistic view of the future role of gas power generation, citing research that finds the fossil fuel no longer competitive with renewables + storage – not even in a peaking power role.

AGL, however, does expect the role of grid-scale energy storage – and particularly battery storage, as costs continue to fall – to be pivotal, too.

“The bow wave of change will be falling battery costs, which will enable big investment in storage, which will in turn enable more investment for renewables and allow coal to close in an orderly
and secure fashion,” Redman said.

“So, policy that enables and supports that falling cost will be welcome.”

So, to sum up – for those, like Deputy PM Barnaby Joyce, who still appear to be completely confused about the energy market state of play – here is one of the “basic assumptions” Redman says AGL is making as it steers its business into the future:

“We are headed for a low carbon future. Absent a staggering change in the scientific consensus and the community’s expectations, it is a matter of ‘when’ and ‘how quickly’ – not of ‘if’.”  

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  • Chris Schneider

    Malcolm secured current gas supply. How is that bad? If we turned the peaking plants off now the grid would be over! Stop trying to paint this as bad. We are and have been making the transition. In the next few years companies like AGL and Westpac will help make this happen a LOT quicker than many even positive analysts think. The dam has burst! I would say 2020 we will be a 50/50 society! The curve is showing that type of growth. GWs of energy will be pumped into Queensland in the coming year alone! combine that with falling battery prices and solar, every company will require this on their roof! The biggest role I see for our governments in the coming year is who to allow Landlords to benefit from Solar and battery storage. The reset will take care of itself.

    • Barri Mundee

      Did you miss the bit about the cost of gas? At current prices gas is no longer economic. Malcolm MAY have secured supply but it remains to be seen if prices drop substantially.

      • Chris Schneider

        You missed the point. He secured supply. You and I actually DON’T want the price to fall. The higher the price for gas the higher the impedance for Renewables. He secured the time for the transition. He know full well he didn’t decrease price. That was never his intention. He believes in climate change. This was a way to get it moving with out needing to fight with his party. The market in this instance works in our favour.

  • Shouldn’t the headline be “…wind, solar and gas peakers cheaper”. ? That is what AGL actually said.

    • Peter G

      too right, sunk cost gas plant is very cheap and a perfect compliment to RE.

  • DJR96

    This analysis from AGL is exactly the sort of thing that will get people and pollies to really take notice and realise that the $$$s stack up in favour of renewables and that will be the direction to take.

  • Steve

    If you look at just the cost of natural gas fuel from $/GJ to $/kWh at a 40% plant efficiency compared with recent solar and solar+storage announced costs, you see that the solar+storage is potentially already cheaper than the gas fuel alone. If we enter an even tighter gas market as forecast and prices remain at LNG parity or go higher, and if solar+storage continues its downward trend, the gig will be up for gas before it ever gets going.
    https://uploads.disquscdn.com/images/3df221a3fb905a3a9a0e8a21d78fe01f481650287d620377162f0b7ad904d450.jpg

  • Alastair Leith

    “We are headed for a low carbon future. Absent a staggering change in the scientific consensus and the community’s expectations, it is a matter of ‘when’ and ‘how quickly’ – not of ‘if’.”

    Most of this article goes to the cost benefit argument for RE + storage, not Climate Change mitigation. So funny he’s saying that as if C price is what everything hinges on (though at some point it will have to come in some form or another for all emitters, ag sector included, our largest source of short term warming emissions).

    • Steven Gannon

      Scientists are confident of breeding ‘low/zero methane cows’ soon, that will take care of most of the problem for the ag sector.

      • Mike Shackleton

        They have found if cows are fed a supplement derived from seaweed (only needs to be a fraction of their diet) it is possible to reduce methane emissions by 99%. Same for sheep. http://www.abc.net.au/news/rural/2017-04-21/seaweed-fed-cows-could-solve-livestock-methane-problems/8460512

        • Alastair Leith

          “Up to 99%” — no doubt that’s an outlier in their data too.

          The only problem is that feedlot cattle account for only 3.8% of ag sector emissions in this country, and yes part of that is enteric fermentation but part of it is other factors too.

          Most of the emissions in Australian livestock industry come from cattle and sheep (mostly cattle) in QLD and NT on extensive range properties where the animals rarely see human contact. It’s absurd enough that drought “emergency” feed is trucked in every year that country is in drought (and wet and dry is actually the climate there, not an aberration, so many years see drought conditions), but the idea of hand feeding cattle dietary supplements every day on these stations would be cost prohibitive compared to intensive zone livestock production.

          The profits come due to a low-labour regime (and taxpayer support). Live exports are the most profitable area (and hence popularity in spite of decades of animal abuse) because there’s even less labour involved at our end.

        • Alastair Leith

          “It is not farmed anywhere, so we can’t buy it, but right now we are trying to develop a supply chain through CSIRO’s innovation accelerator program.”

          So to feed feedlot livestock with seaweed as 5% of their diet is going to be how much seaweed production from a non-existent sea weed industry? How many tonnes of seaweed, in addition to grain and hay?

          (I have a friend who was involved in trying to get that industry going in Indonesian waters and I know how non-trival the hurdles are).

        • Steven Gannon

          That was the one, thanks. Looks like Alastair’s got a bee in his bonnet, his issue.

          • Alastair Leith

            Steve and Mike you’d be supposed how many times somebody has already linked to that article and waved Ag sector emissions away as a consequence.

            Kinda of like how I remember the pal industry ised to talk about CCS a decade ago to dismiss concerns around their gig emissions.

            It’s less a bee under my bonnet than a deep consideration of climate science and the fact that the largest sector of ghg emissions in Australia is in Ag and yet we never discuss it. Energy has finally become a national policy discussion, even if the federal government are taking denialists postions on the reality of our national emissions and catastrophic climate change. But Ag is never discussed with any priority. I’ve heard Ag scientists even at CC adaptation symposiums and the like wave away methane emissions becuae they are “gone in no time”.

            The really is that methane has contributed 39% to the current 1.0° C of warming we’ve seen. IPCC AR 5 ch 8 supplementary material. Shindell et al.

            Even if all anthropogenic emissions ceased tomorrow at noon average temp anomaly would rise another 50% on current level to 1.5° C at least. Some climate scientist say much higher due to short term fwedbacks that IPCC consensus process downplayed and/or omitted.

            The importance of reducing Ag sector emissions immediately is becaue a) we can b) it contributes a lot to short term warming thanks to methane and SLCPs and c) this will buy us time to get all energy consumption off fossil fuels.

            Moreove livestock is an extremely inefficient and toxic way to produce “protein” for human consumption. There’s a lot of misunderstanding about protein and it’s importance in human diets (we only require around 10% by calorific content in a healthy diet and plant sources come with much less metabolic damage and associated diseases). I’ll link you to a kg emissions to kg of protein comparison for various meat and plant sources when I get back to the office. Prepare yourselves for more statistical shock and perceived insult.

      • Alastair Leith

        It’s comments like this that show just how much profound ignorance around ag sector emissions there is in the community. Even if what you said was true, and it isn’t, that only deals with one portion of the emissions in the ag sector, other major sectors include land clearing, both of virgin bush and reclearing and savannah burning are two other major sources. There are many other lesser sources like manure fertilizer application and so on.

        Read and learn: bze.org.au/landuse

        • Steven Gannon

          Thanks for the gratuitous insults. My statement regarding methane came from Australian scientists, who have long been cutting edge in ruminant research. I was trying to share some knowledge with you, not head butt you, I won’t bother next time.

          PS. I once earned an agriculture diploma, I specialized in Rangeland Management.

          • Alastair Leith

            Link to a paper please, Steve. The insult is inferred not intended. Are you refuting anything I said or just lining up your expertise against mine?

          • Steven Gannon

            I’m not interested.

          • Alastair Leith

            Thanks Steve, just wondering when you took the Dip Ag did they explain the difference between hereditary breeding programs and dietary supplements? Because the article you identified with “that’s the one” is about supplements. As I said below, feedlot livestock is about 3.8% of ag sector emissions.

  • love this line
    So, to sum up – for those, like Deputy PM Barnaby Joyce, who still appear to be completely confused about the energy market state of play – here is one of the “basic assumptions” Redman says AGL is making as it steers its business into the future:
    “We are headed for a low carbon future. Absent a staggering change in the scientific consensus and the community’s expectations, it is a matter of ‘when’ and ‘how quickly’ – not of ‘if’.”

  • Ian

    Redman reckons that….“Rooftop space is limited compared with demand, so while rooftop solar will deliver some of what is needed, the majority still looks like coming from grid-scale.

    That will remain the case while builders keep putting so called value- added complicated roof designs and decorative gables on, which seriously curtail the potential size of pv systems.
    Keeping a roof simple saves a lot of cost and enables pv generation to easily match demand in a designed for efficiency, home that is alos run efficiently.

    • Steven Gannon

      Aspect and surroundings have more impact than roof design. I don’t see much need to change architecture, it’s not critical.

    • Alastair Leith

      most building stock exists already though. I think about 10% of buildings are new to each decade. There’s acres of light industrial rooftops and those have yet to get in on the game, changes to energy trading regulations could see an avalanche of PV on all those flat unshaded roofs.

  • Les Johnston

    Good to see AGL seeing the low carbon future without including the cost to public health as a result of breathing air pollution from fossil fuels. When will the Federal Health Department speak up about health effects arising from fossil fuel combustion?

  • trackdaze

    Says the company that acquired 4.6gigawatts of coal generation in the last 5years