Gas-fired Electricity Generation is a Bridge, Not a Destination: The longer we stay on it, the more Australians pay!
New analysis by Nexa Advisory shows that delays to the build out of renewable energy generation, transmission and storage to back up forecastable energy sources like wind and solar, risks an over reliance on expensive gas generation which could increase wholesale costs to $115.7 billion compared to an orderly transition.
This means that wholesale costs would increase by 15.7 per cent and 21.5 per cent on average until 2050 under the current trajectory.
As the highest cost energy generation source, gas will play a small and declining role as a bridge to the energy transition. Over reliance on it risks driving up electricity costs and failing on emissions targets. Further gas-fired generation will not only be constrained by the highest cost to consumers, but also because global supply chain issues are resulting in lengthy lead times for new gas turbines.
Key Findings
- Major delays result in greater reliance on additional gas
- If renewable projects continue to be delayed due to disorderly transition processes and transmission bottlenecks, up to 2.8 GW of additional gas capacity could be required to meet electricity demand.
- These outcomes can be reversed with coordinated action to get the transition back on track.
- Reliance on gas will be expensive
- Annual gas consumption could increase by as much as 107 PJ by 2030.
- Relying on gas-fired generation to fill reliability gaps is neither simple nor cost-effective:
- Global supply chain constraints mean new gas turbines now have lead times exceeding five years.
- Gas infrastructure is already constrained; additional gas generation would intensify these pressures.
- Any investment should focus on gas storage rather than new pipelines, which pose high stranded asset risks and would increase costs for consumers.
- Gas will play a limited back-up role in the future
- Gas will continue to provide reliability and security support, but batteries and energy storage are increasingly substituting for gas peaking plants.
- There is no silver bullet – but targeted alternatives will be needed to get the transition back on track
- Fast-tracked intra-regional hosting capacity could avoid the need for 1.8–2.8 GW of new gas-fired capacity otherwise required due to project delays.
- This will require an expanded focus on private, market-led transmission, as well as non-network and virtual transmission solutions, which can reduce costs, accelerate delivery, and improve social licence outcomes.
- Delays are costing households and businesses
- Transmission delays alone could increase wholesale electricity costs by $84.6 billion compared to an orderly build-out.
- If intra-regional delays in Renewable Energy Zones (REZs) persist, this cost could rise to $115.7 billion.
- Coal extensions are incompatible with Australia’s emissions trajectory
- Coal-fired generation is responsible for 77–84% of total electricity sector emissions through to 2050.
- Timely closure of these ageing assets by the mid-2030s is essential to reduce emissions and restore investor confidence.
Summary of key recommendations
- Accelerate transmission build outside the Integrated System Plan (ISP) planned projects
- Initiate an independent NEM-wide transmission review to determine how to plan and deliver the necessary transmission infrastructure needed to connect the necessary renewable generation and storage
- Create accountability for delivery of major transmission infrastructure on time and on budget
- Identify and facilitate market-led intra-regional transmission and virtual transmission solutions
- Provide certainty to investors to ensure we mitigate capital flight and can close coal-fired power stations on schedule
- Facilitate better approval processes to ensure we attract investors in and developers of the energy infrastructure we need (within Australia and from overseas).
- Look beyond the REZs
- Provide certainty about coal-fired generation closures
- Clearly articulate the back-up role of gas in the clean energy transition
- Provide a decisive view and reflect this across climate and energy policies
- Improve how the value of emissions reduction is considered both across government decision-making
- Prioritise the implementation of the NEM wholesale market settings review, namely:
- The proposed forward contract mechanisms to support the timely closure of coal-fired power stations
- The strategic reserve mechanism
Read the report here: Nexa Advisory – Role of Gas
Read the modelling report here: Nexa Advisory – Role of Gas – Modelling Report