AEMO says gas plants may be "stranded" by falling renewables, storage prices | RenewEconomy

AEMO says gas plants may be “stranded” by falling renewables, storage prices

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AEMO report cites future of gas-powered electricity generation as “greatest variable” in fortunes of Australian gas industry.

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An Australian Energy Market Operator report has cast serious doubt over the role of gas power generation in Australia’s future energy mix, warning that the falling cost of renewable energy and battery storage could turn any new gas plants into costly stranded assets as early as 2030.

AEMO’s third annual National Gas Forecasting Report (NGFR), released on Thursday, highlights some of the uncertainties and challenges shaping gas demand forecasts for Australia over the next 20 years.


And by AEMO’s account, the future of gas-powered electricity generation in Australia is “the greatest variable” in the fortunes of the domestic gas industry, as well a the greatest investment risk.

The advice from the market operator sits in stark contrast to the message from many governments and fossil fuel lobbyists, who argue that gas will be a key player in Australia’s future grid, in “balancing out renewables” and supplying industry.

(It also makes Greg Hunt’s gas supply crisis meeting with industry on Monday look a little overblown.)

Even the South Australian government, which has been such a strong supporter of renewable energy development in the state, has lately put its money on gas, opening its “low carbon” energy tender to peaking gas plants.

But, as AEMO notes, this may not be a great idea. According to the current cost trajectories, the report says, wind generation plus storage looks set to become economic in the 2030s, and small-scale energy storage around 2020.

“These assumptions, along with assumptions for the cost of solar generation, have big implications for the economics of new fossil-fuel generation, and for the viability of existing thermal plant.

“If the strong momentum to renewables continues, including beyond the 20-year horizon of this NGFR, newly-constructed gas generators could have short commercial lifespans if alternatives are developed.”

Of course, there are other influences on the investment risk for gas infrastructure, including the future behaviour of the industrial sector, and the rate of coal plant retirements.

“Unexpected or disorderly coal plant retirements could require GPG investment using higher-cost gas to fill a gap in generation supply,” the report says.

But even in this case, the economics of gas are in doubt. AEMO says it has found that, in some circumstances, it might actually be cheaper, and less risky, to defer coal-plant retirement than to build new gas generators.

“Uncertainty-based economic analysis has examined the potential for deferment of coal plant retirement, in a future pathway where … the potential cost of extending the operation of a coal plant, beyond technical end of life, could be less than the costs of building new replacement gas plants and corresponding production and transmission infrastructure,” the report notes.

This, added to the “momentum to renewables, with declining costs of renewable energy and potential energy storage, heightens stranding risk of investments in (gas power generation,” it says.

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  1. Cooma Doug 4 years ago

    The falling cost of renewables is one thing. The miniscule capacity factors of peaking gas plant in the 5% area, with a large portion of that being test runs, is another puzzle for the logical.

    But the wholesale market is designed for large base load, minimal load response. The system supports the rediculous. In 2016, a system that responds to generation loss and rams the energy down the neck of all those connected, needed or not is rediculous.

    A relative small contribution from the load side will make gas peakers extinct. 400 thousand homes, responding to frequency excursions at the home, with 4 kw of solar and storage, would render gas peakers extinct.
    Add to this the adjustments to the wholesale market rules to appropriately update, will make peaking plant on the HV side a crazy idea.

  2. Tim Forcey 4 years ago

    2016 gas use in the AEMO-defined residential, commercial, industrial and electricity generation sectors was only 83% of what it was in the eastern Australia “peak gas” year of 2012.

  3. Tim Forcey 4 years ago


    AEMO says…

    “A gas to electric appliance-switching trend is projected to offset growth in gas consumption from a rising population. Household appliance options, which are increasingly electric, give consumers the greatest opportunities to achieve energy efficiency savings and therefore offset rising prices.”

  4. Miles Harding 4 years ago

    Here’s some complete nonsense from the economist trolls at AEMO.

    It makes no sense to only compare costs. The discussion should be around the differing properties of the various generation and curtailment options available.

    Gas peaking plant (I assume we are talking Open Cycle Gas Turbines) is cheap to install and quick to start when needed. It is also small in footprint and can be installed near to the load. OCGT in particular can be run on a variety of fuels, making it resilient against gas supplies.

    The same could be said of a Concentrating Solar Themal plant. The generator part doesn’t care where it’s heat source comes from, so this can equally be gas, oil, biomass etc.

    Where a network will get into difficulty will be transitioning away from coal without building sufficient renewable and storage to offset it. With addtional RE, the amount of gas used decreases until the point where it is only being used to address un-curtailable shortfalls in generation and storage. Modelling suggests that this only becomes a big issue above 85% renewable.

    We should not think of a gas peaker as being stranded or expensive to operate if it is only used 15% of the time, but as a necessary component to accomodate bad weather.

    The NEM has a long way to go before it has a problem.

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