AEMO says batteries will be cheaper and cleaner than new gas plants | RenewEconomy

AEMO says batteries will be cheaper and cleaner than new gas plants

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The Integrated System Plan confirms that the gas lobby claims of gas as a transition fuel is tenuous – on both economic and environmental grounds, and because there are smarter alternatives.

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Australia’s federal government, urged on by the gas lobby, has sought to make a big deal about the need to promote gas as a transition fuel for the switch from coal to renewables and storage.

It’s view that has been hotly contested by environmentalists, who say gas is not much cleaner than coal because of its methane emission, who point out that it is really expensive, and now again by the engineers responsible for keeping the lights on, who cite both the reasons above and who say there are likely cheaper, smarter and cleaner alternatives.

The Australian Energy Market Operator, in its 2020 Integrated System Plan – a 20 year blueprint to ready Australia for what it describes as the world’s “fastest energy transition” recognises that gas can provide the synchronous generation needed to balance variable renewable supply, i.e. wind and solar, and be a potential complement to storage.

Under no scenario does the amount of gas burned for electricity in Australia’s main grid increase over the coming decade. It is more likely to fall significantly.

Ultimately, however, it will come down to price, and while current costs favour existing gas plants, the case for new gas generators is less likely because the cost of battery storage is falling rapidly, and gas may not pass muster when it comes to considering the all important carbon budgets.

Gas currently has two roles in the electricity grid – as a provider of baseload and intermediate generation, with more flexibility than coal, and as a source of “peaking” generation that can rapidly respond to sudden changes in supply and demand. But AEMO’s forecasts suggest a fall in gas capacity, even in the central “business as usual” scenario.

The outlook for the former is not good, simply because gas is expensive to extract, and even at the prices promised by the gas lobby – on condition that they receive big new subsidies from the government – won’t be able to compete with wind and solar for bulk generation. Many of these plants are old and are due to retire. They won’t be replaced like for like. Some young generators will remain in case of wind and solar “droughts”.

That leaves its role as a “fast-start dispatchable” source where the need for something makes price less important.

Fast start generators don’t cost much to build but because they rarely operate the owners need to charge a king’s ransom when they do to enable them to get their money back. The problem is that batteries are increasingly able to compete on price, and because batteries can provide a myriad of other services, can source other revenue streams – as long as the new markets are created. And that will make them a more interesting investment.

This graph, Figure 18, is interesting.  It depicts the breakeven cost between batteries and gas generators to provide a daily 4-hour dispatchable supply as a function of long-term average gas price and the long-term average cost to re-charge a battery.

Per AEMO:

“Batteries are typically re-charged in the middle of the day, when even today prices already reach $0/MWh or even negative prices at times. The diagonal breakeven lines for a gas vs battery investment move from the right (today) to left (2030). At today’s relatively low gas prices, a 4-hour battery installed today (at $1,964 /kW capital cost) would need to be charged for free to be competitive with a new OCGT (at $1,416 /kW). However, for GPG to remain a competitive investment as battery costs reduce (to $922/kW by 2030), gas prices need to be as low as $4/GJ in the long run, while charging costs need to remain relatively high at $30/MWh. Even in 2019-20, 4-hour batteries would have been able to charge at an average price below $30/MWh in all regions except New South Wales.”

Of course, unless the gas industry can tap into the gaseous fumes emitted during Question Time, it has buckley’s of securing long term supply at prices of around $4/GJ.

The new ISP notes has revised down the cost of battery storage by around 30 per cent from its draft, after getting feedback from stakeholders. And because the peaking gas generators are likely to be smaller capacity than thought, the price of that service has risen by between 30 and 60 per cent.

The cost of pumped hydro has also risen significantly, which does raise more questions about the viability of the government’s pet project, the massive Snowy 2.0 pumped hydro scheme.

“Gas and batteries can both serve the daily peaking role that will be needed as VRE (variable renewable energy) replaces coal-fired generation, so relative whole of life cost is a key variable for potential investors to consider,” the AEMO ISP notes.

“Gas has a cost advantage over batteries at current gas and battery costs. However, in the 2030s when significant investment in new dispatchable capacity is needed, this advantage could shift to batteries, especially to provide dispatchable supply during 2  and 4-hour periods.

“Based on the cost assumptions in the ISP, new batteries are more cost-effective than gas in the 2030s. Future climate policies may also impact the investment case for new gas.”

In the US, batteries are already being preferred over peaking gas generators, and that in a country where the supply of gas is considered to be low cost.

AEMO estimates that the National Electricity Market will need between 6 and 19 GW of new flexible, utility-scale dispatchable resources to firm up the inherently variable resources.  Not a lot will be needed until the share of wind and solar gets over 50 per cent, that’s because the current system already has a lot of redundant capacity.

Most initial investment will be in utility-scale pumped hydro (such as Snowy 2.0, already committed) or battery storage (assuming technology costs continue to fall, and the market arrangements sufficiently incentivise this development).

“Some distributed batteries are assumed to participate in the NEM and operate as a VPP (virtual power plants), with this portion varying by scenario. DSP is also assumed to increase at different levels across scenarios, to help manage costs for consumers.

“New flexible gas generators could play a greater role if gas prices materially reduce. Ultimately, the NEM will draw on a technologically diverse mix that may diversify further as other technologies, such as hydrogen, mature. In the end, a well-designed market is best positioned to determine the optimal mix of these dispatchable resources as technological, economic and policy decision factors evolve over time.

“Shallow storage for capacity, ramping and FCAS – includes VPP battery and 2-hour large-scale batteries. This category of storage is more for capacity, fast ramping, and FCAS than it is for its energy value.

“Medium storage for intra-day shifting – includes 4-hour batteries, 6-hour pumped hydro, 12-hour pumped hydro, and the existing pumped hydro stations, Shoalhaven and Wivenhoe. The value of this category of storage is in its intra-day shifting capability, driven by demand and solar cycles.

“Deep storage for VRE ‘droughts’ and seasonal smoothing – includes 24-hour pumped hydro and 48-hour pumped hydro and includes Snowy 2.0 and Tumut 3. The value of this category of storage is in covering VRE ‘droughts’ (that is, long periods of lower-than-expected VRE availability), and seasonal smoothing of energy over weeks or months.”

The energy minister AngusTaylor did not seem too convinced. “The Government also strongly believes gas will play an important role in balancing the NEM and complement the record levels of renewable energy generation entering the market,” he said in a statement.

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