Basin review, Markets

Future outlook for gas-fired power generation

How much have global trends in gas-fired power generation affected the landscape in Australia?

Global trends such as higher demand for LNG for power production – specifically post-Fukushima, but also from China – have resulted in upward price pressures for the local market thereby having a negative impact on the competitive position of gas-fired power generation in Australia.

Given this, unless we see downward price shifts in the global LNG market, specifically in the Asian region, we would not expect to see a positive impact on the gas-fired power generation market in Australia.

What can Australia’s power sector learn from the stranded assets suffered by the EU power sector?

This issue has hit both the US and the European Union (EU). In some ways this is just the nature of the industry and significant changes have occurred over the years, which have drastically changed the face of the industry. This is nothing new.

What Australian government and business can learn is the need for clear energy policy that spurs sustainable investment in the industry and takes into account the impact of the stranded
assets on energy security, and industry jobs and skills.

Is the uncertainty created by the ongoing carbon policy debate a factor that has led to a dip in Australia’s power market and if so, how?

Certainly there needs to be clear policy as this drives investment decisions. Renewable generation development will put additional pressure on gas-fired generation in an already over-supplied market. By having certainty around the renewable targets this will provide additional clarity and confidence for potential future investments in gas-fired generation.

Can you think of any other factors that have contributed to a dip in gas-fired power generation in recent years?

The Australian Energy Market Operator (AEMO) reported in August 2014 that for the first time in the history of the National Electricity Market (NEM), “no new thermal base load electricity generation is required over the next decade to maintain system reliability, due to the continuing decline in electricity consumption”?.

The only possible new investment would most likely come from the renewables side. When you then add in the relative cost position of gas this will make it extremely difficult to invest in further plant gas-fired generation. Additionally, companies which manage both gas and generation can make more money selling the gas than using it for fuel for gas generation plants, which may result in stranded assets.

However, gas-fired generation can continue to play a role in peaking capacity, as well as provide a much needed short outlet during ramp-up periods for CSG-to-LNG projects.

What do you foresee for the future of gas-fired power generation in Australia?

With the lower overall demand in the power market coupled with higher gas prices, it is difficult to see what would drive this growth. The one major factor that could change this would be a fall in gas prices, as has happened in the US or through governmental policy changes.

However, in the mid-term, uncertainty in the domestic market caused by higher price volatility; possible privatisations; a lack of clarity on carbon pricing; and the acceleration of distributed power generation will create a possible delay to decisions in new power generation, irrespective of the fuel source.

What reforms need to take place to encourage future growth in the Australian power generation sector?

Gas-fired generation can certainly be a good source of power generation in the future but competitive domestic gas prices and clarity in energy policy is essential to supporting investment and development.

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