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

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.

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.