The Clean Energy Finance Corp sees a limited role for gas-fired generation in Australia in a high renewables grid, and instead wants more focus on reforming market signals, transmission and grid infrastructure, and energy storage.
In its submission to the Finkel Review, the CEFC also repeats its assertion that coal-fired generation will not likely get any private financing support at acceptable rates, and argues that numerous reports point to the fact that high levels of renewable energy can be incorporated into the grid.
The Finkel Review is shaping up to be a major blueprint for the reform of Australia’s energy markets, and whether the country will accelerate its push into new, smart technologies, or throw the brakes on in an effort to protect established fossil fuel interests.
The federal government has indicated it would like the CEFC to invest in new coal-fired generation, and this week the main oil and gas lobby, APPEA, argued in its submission to Finkel that the CEFC should also support gas-fired generation. Other fossil fuel generation companies echoed those calls.
But CEFC chief executive Oliver Yates says any new fossil-fuel generation in Australia would be unlikely to find private sector finance at an acceptable cost.
“While there are several proposals in the market for new gas-fired generators in Australia, our observations indicate that it is challenging to find long-term domestic gas supply agreements to support new investment,” the submission says.
It notes that gas prices – which have already jumped sharply thanks to new LNG export facilities – are expected to rise significantly further in real terms over the next 15 years as international demand increasingly determines Australian domestic gas prices.
In addition, peaking gas-fired generation is likely to be sidelined by new large-scale and rooftop solar installations, which will change daily electricity generation profiles. On top of this, gas-fired generation is likely to have a shorter economic life under future carbon constraints.
Instead, the CEFC wants more emphasis on encouraging energy storage, demand management, and upgraded transmission.
It appears to support renewable energy auctions, of the type used by the ACT, in limited quantities by Queensland and Victoria, and in many other countries, to support renewable energy projects, and to value system services such as energy storage and dispatchability.
“Auctions use market competition and discipline to keep downward pressure on project costs, and long-term contracts with government counterparts … provide certainty over revenues which in turn reduces financing costs,” it says.
“Staging periodic auctions on a multi-year timetable ensures that contracts capture reductions in technology costs, attract new project developers to the market to increase competition and allow the procurement process to respond to changes in market needs over time.”
The CEFC also notes that wind and solar plants can be built relatively quickly, meaning that the electricity system is “capable of rapid transformation” and is likely to bear a larger share of the national emissions reduction burden in the early years of Australia’s shift to a low-carbon economy.
Technology costs for wind, solar and battery storage continue to fall, and a number of major studies in recent years have confirmed no technical barriers, a point highlighted by Finkel in his preliminary report.
“The studies have found that while an increasing share of renewables will mean changes to the way the grid is managed, there are no technical barriers to achieving energy security with a very high share of renewables,” the CEFC submission said.
But it also said that if “ageing coal-fired generation capacity” is withdrawn before new renewable energy capacity is available to meet the shortfall, prices are likely to be higher and more volatile.
Because of this, it was important to facilitate a smooth transition to a high-renewables system and avoid price spikes, using policies that support early investment in renewables to prepare in advance for coal capacity withdrawals, and investment in energy storage and transmission.