Gas ad­van­tage at the mercy of gov­ern­ment re­new­ables pol­icy

The Weekend Australian - Review - - Clean Energy - Keith Orchi­son

THIS is a good news, bad news year for the do­mes­tic nat­u­ral gas in­dus­try. While the Rudd Gov­ern­ment’s emis­sions trad­ing scheme of­fers gas sup­pli­ers the sup­port they need to build mar­ket share in elec­tric­ity gen­er­a­tion, the pro­posed large in­crease in com­pul­sory use of re­new­able en­ergy threat­ens to rip away much of the ad­van­tage.

With bil­lions of dol­lars in in­come at stake over a quar­ter cen­tury, this is no small is­sue for the gas in­dus­try. The arith­metic is straight­foward. Elec­tric­ity sup­pli­ers and the gov­ern­ment com­mod­ity eco­nomics agency ABARE both pre­dict that power con­sump­tion will con­tinue to rise strongly over the next 25 years. A ball­park es­ti­mate is that de­mand in 2020 will reach 300,000 gi­gawatt hours — from 220,000GWh at present — and that it will pass 350,000GWh by 2030.

The En­ergy Sup­ply As­so­ci­a­tion says that meet­ing this growth will re­quire gen­er­a­tion ca­pac­ity to be ex­panded from 50,000MW to­day to 59,000MW in 2020 and 77,000 MW in 2030.

The Aus­tralian Pe­tro­leum Pro­duc­tion & Ex­plo­ration As­so­ci­a­tion, on be­half of the gas sup­pli­ers, has an am­bi­tion to see 70 per cent of this ex­tra ca­pac­ity fu­elled by nat­u­ral gas ( eth­ane) and coal seam meth­ane, which is now avail­able in abun­dance in Queens­land.

The pro­posed emis­sions trad­ing scheme can only help this am­bi­tion — the added cost bur­den will make it harder for gen­er­a­tors fu­elled by black and brown coals to main­tain ex­ist­ing mar­ket share, let alone grow it.

The sales val­ues at stake are mas­sive. A gi­gawatt hour of elec­tric­ity cur­rently car­ries a whole­sale price of around $ 35,000 and an ex­tra 60,000GWh in the 2020 mar­ket­place, at to­day’s prices, would be worth $ 2.1 bil­lion.

Achiev­ing the AP­PEA goal would there­fore de­liver the gas pro­duc­ers and gen­er­a­tors more than $ 1.4 bil­lion a year in new rev­enue by the end of next decade — and this is be­fore fac­tor­ing in what they might gain from a re­duc­tion in coal- fired power out­put. Al­low­ing for con­tin­u­ing growth in power de­mand, meet­ing the gas in­dus­try’s tar­get could de­liver it more than $ 15 bil­lion in rev­enue be­tween 2020 and 2030.

Un­for­tu­nately for the gas sec­tor, the Rudd Gov­ern­ment’s need at the last fed­eral elec­tion to en­sure that it ben­e­fit­ted from the lion’s share of Green pref­er­ences led it to com­mit to in­tro­duc­ing a 20 per cent manda­tory re­new­able en­ergy tar­get.

The ex­ist­ing MRET, leg­is­lated by the Howard Gov­ern­ment, re­quires elec­tric­ity re­tail­ers to buy 9,500GWh of power from new re­new­able re­sources by 2010 and pro­vides the re­new­able gen­er­a­tors with a $ 40,000 per GWh sub­sidy.

The Rudd Gov­ern­ment’s plans will see a to­tal of 60,000GWh of power sup­ply pro­vided by the re­new­able gen­er­a­tors in 2020.

A sub­stan­tial chunk of this sup­ply al­ready ex­ists in the mar­ket — in ad­di­tion to the 9500GWh re­quire­ment of the Howard MRET, long- es­tab­lished hy­dro- elec­tric gen­er­a­tors ( who are barred from re­ceiv­ing the sub­sidy) pro­vide about 15,000GWh a year at present.

The Rudd Gov­ern­ment pol­icy will make a present of 35,500GWh a year of mar­ket share to new re­new­able en­ergy gen­er­a­tors by 2020. How the pol­icy will be phased in and what the sub­sidy will be re­mains to be seen — but, al­low­ing that the sub­sidy will con­tinue to be $ 40,000 per GWh and that the whole­sale price of power stays at $ 35,000 per GWh, the pol­icy presents the re­new­able sec­tor with a wind­fall worth more than $ 2.6 bil­lion an­nu­ally from 2020.

The big losers — apart from en­er­gy­in­ten­sive man­u­fac­tur­ers, who will bear a third of the sub­sidy bur­den — will be gas sup­pli­ers and the gen­er­a­tors us­ing their fuel. They stand to lose 40 per cent of the prize to more ex­pen­sive, but non- emit­ting, fuel sources.

On modelling car­ried out for AP­PEA by con­sul­tants CRA In­ter­na­tional, the big win­ners will be de­vel­op­ers of wind farms, who stand to pick up al­most half the re­new­able sec­tor’s ex­tra power sales flow­ing from the ef­fects of emis­sions trad­ing plus the new MRET.

CRA says pur­su­ing the en­larged MRET rather than stick­ing to a ‘‘ pure’’ emis­sions trad­ing scheme will cost the econ­omy $ 1.5 bil­lion a year and put up power prices by an­other six per­cent.

AP­PEA chief ex­ec­u­tive Belinda Robin­son ar­gues that achiev­ing green­house gas abate­ment at the least cost should be the cen­tral plank of gov­ern­ment pol­icy — and this can be best pur­sued through a well- de­signed emis­sions trad­ing scheme, with the re­new­ables sec­tor be­ing sup­ported by mea­sures to ac­cel­er­ate de­vel­op­ment of new tech­nolo­gies, not sub­si­dies for ex­ist­ing ones like wind power.

The Clean En­ergy Coun­cil re­sponds that the en­larged MRET needs to be in place by the be­gin­ning of 2009 to drive along re­new­able project de­vel­op­ment. Aus­tralia needs the MRET as well as tech­nol­ogy in­no­va­tion sup­port to take full ad­van­tage of the re­new­able re­sources avail­able, it ar­gues. CEC and the en­vi­ron­men­tal move­ment would like to see the MRET sub­sidy in­dexed to in­fla­tion to pro­vide an on­go­ing in­cen­tive at the cur­rent level.

Op­tions: Pol­icy should be for cheap­est cost, ar­gues Belinda Robin­son

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