Gas is back in the headlines this week, as unplanned coal power outages, a blast of particularly wintry weather and, as the Australian Financial Review puts it, “feeble renewable generation” have combined to drive higher gas power consumption in Victoria.
Add to this a reduction in gas processing capacity at the Longford plant and you have all the ingredients you might need to bash wind and solar while launching a fresh plea for more gas – or as the Australian Financial Review calls it, “the fossil fuel vilified by the Allan state government.”
To be fair, all of the above did happen over the course of Wednesday and Thursday – with the exception of the coal generation unit, which fell apart on Sunday – resulting in wholesale power prices in Victoria peaking at $17,500/MWh on Thursday evening.
But to be fair to Victoria, the state government is currently leading the nation (it’s not a high bar) in legislation to shore up gas supplies from the demand side – or what the AFR prefers to call vilification.
The Victorian Labor party is forging ahead with plans to get gas out of homes and small businesses in the state, in what many experts believe will be a big part of ensuring there’s enough gas around for occasions such as this week, when coal flunks out and the wind doesn’t blow and we don’t yet have enough storage to fill the gaps.
Having already banned gas connections for new-build homes in the state, Victoria’s energy minister Lily D’Ambrosio in December released a 2024 Gas Substitution Roadmap Update and a Building Electrification Regulatory Impact Statement (RIS), calling for feedback on a range of options for the continued phaseout of gas.
In a foreword to the update, D’Ambrosio says gas is “no longer a cheap and plentiful source of energy for Victorian homes and businesses” and so weaning the state’s more than 2 million homes off the fossil fuel will cut energy bills while also freeing up supply for industry and generation.
But the important thing to note here is that Victoria is not alone in its exodus away from residential gas. It’s actually happening all over the country as households and businesses discover it is much cheaper and more sustainable to go electric, backed up by solar and maybe, now, a discounted home battery.
Such is the momentum of this shift – legislated or not – that the national energy market rule maker, the Australian Energy Market Commission (AEMC) this week initiated consultation on a rule change that seeks to update cost sharing associated with new gas connections, to avoid a disorderly transition from fossils to electric.
The rule change, requested by Energy Consumers Australia, calls for a change to the National Gas Rules (NGR) that would introduce an obligation on gas distributors to charge new customers the full cost of a new gas connection through an upfront connection fee.
As a side note, this is a rule that is already in place in Victoria, following the proposal of a rule change, consultation and then updating of the state’s Gas Distribution Code of Practice, which took effect on January 1, 2025.
The issue over the so-called death spiral for gas networks is a critical one for industry and regulators, because one of the unresolved problems of the push to electrification is who gets to bear the cost of stranded gas pipelines and other infrastructure.
Currently, they are socialised across all network customers, but as more and more consumers electrify, the costs of operating and maintaining the network will be shared among a declining customer base.
As the AEMC consultation paper notes, the Australian Energy Market Operator’s East Coast GSOO projects distribution connected residential and commercial gas demand will fall by around 70% over the next 20 years, with a 30% reduction projected in the next 10 years.
“A key focus area under the Australian Energy Market Commission’s (AEMC or Commission) strategic narrative is to consider how the gas regulatory framework can best support consumers and the electricity system as we transition to a net-zero system,” the paper says.
“Declining demand on gas networks will place upward pressure on prices for those who continue to use gas. Absent any policy interventions, customers facing barriers to electrification will be left using the gas network.
“These customer groups may include lower-income households, renters and apartment dwellers. This may raise issues of cost inequities, particularly for vulnerable customers.
“The regulatory framework should seek to facilitate equitable outcomes for customers, whilst promoting efficient use and investment in gas infrastructure, safety and reliability of gas supply and emissions reduction.”
In a statement released on Thursday, ECA says a national rule change will ensure that those connection costs are not passed on to existing consumers who face barriers to leaving the gas network, like renters.
In addition, it notes that consumers will be made privy to “the real cost of a gas connection” and can then better assess if they wish to electrify instead, depending on their circumstances.
“In our latest national consumer survey, 1 in 3 homeowner households using mains gas said they will probably cancel their gas supply within the next 10 years,” ECA CEO Brendan French said.
“This transition will bring with it countless benefits as consumers who go all-electric will experience lower running costs, healthier homes and businesses, however, as more and more households leave the gas network, the network costs will be shared by an increasingly small pool of consumers.
“We’re calling for stakeholders to support our rule change amendment and ensure remaining gas consumers are not left paying an unaffordable share for maintaining the whole gas network.”
And while this rule change is about protecting consumers and ensuring an orderly transition away from gas in homes, experts note that measures like this will also be good for freeing up gas to use on the grid.
A report this week from IEEFA, entitled Delaying eastern Australia’s gas crunch, explores a variety of longer-term policy measures that could be implemented to improve supply adequacy without the need for new fossil fuel developments.
Alongside the establishment of new gas storage facilities, and the opening of two new LNG import terminals in Victoria, IEEFA’s Kevin Morrison says residential, commercial and industrial gas demand can be significantly reduced through electrification and energy efficiency measures.
As Alan Pears writes here, this week, hand-wringing about limited east coast gas supply has become a recurring theme of Australian winters.
“High winter gas demand seems to be mainly driven by inefficient heating equipment (both gas and electric) heating thermally inefficient buildings and inefficient electric appliances,” Pears says.
And yet “there is surprisingly little focus on what drives demand, and what we could do about that.”
