From the AFR yesterday:
A dramatic fall in the use of gas in power generation has fuelled fears that some older plants will be forced to close despite the increasing need for gas to prevent blackouts as wind and solar generation surges.New evidence has emerged of the speed of the decline in gas power generation across the National Electricity Market last year, with several plants seeing a slump of 80 per cent or more in use in the September quarter compared with a year earlier. Use of gas on the east coast for electricity generation was 42 per cent lower in December than a year earlier while solar, hydro and wind all jumped, according to consultancy EnergyQuest.Higher gas prices on the east coast have cut the hours through the day that gas plants can generate electricity at a profit, requiring expensive upgrades to fight off the closure threat, power producers admit."For the first eight years of the last decade, natural gas held an uncontested role as the third major fuel source for electricity after black and brown coal," said Josh Stabler, managing director of energy advisor EnergyEdge."However, in the month of October 2018, the electricity contribution for natural gas was the lowest major contributor to electricity, sitting below black coal, brown coal, wind, solar and hydro."A reduction in wholesale power price volatility since the introduction of the large Tesla battery in South Australia is also weakening the role of gas in power generation, and the pending introduction of more large storage plants will only worsen the problem, according to Wood Mackenzie's Zi Sheng Neoh."The revenue model of these gas plants relies on volatility and higher power prices during peak times, and with that dampening it takes away the opportunity for secure a more sustainable revenue stream," Mr Neoh said."These plants need some incentives to keep running."Rising gas prices have contributed to the decline in the use of the fuel to generate power. ENERGYEDGEThe Pelican Point gas plant already had to be brought back online in 2017 to avoid blackouts in South Australia, where generation is dominated by wind and solar.But the country's biggest gas power producer, Origin Energy, maintains its plants are not at risk."The use of gas for power generation is changing to when demand is at its greatest, most often at the start and end of the day," said Simon Rodgers, general manager, trading and operations.Gas use has slumped at some power stations. ENERGYQUEST"As a result, the total volume of gas required for power generation is lower than in the past. However, the role of gas is more important than ever with its flexibility supporting system reliability given the increase of intermittent renewables."Mr Rodgers said batteries, which only provide back-up for a short time, have only had a minor impact on the wholesale market although that could change over time as more are installed. He said Origin has invested to improve the flexibility of its Quarantine generator in South Australia by adding fast-start technology to one unit.Alinta Energy, which owns gas plants in Queensland and Victoria, also shrugged off the worries."We believe the services provided by gas and baseload generators will continue to be critical to the functioning of the NEM for many years to come," said Daniel McClelland Alinta's executive director corporate services.Acting energy minister Matt Canavan said gas generation "will have a substantial role into the future" in Australia's energy landscape. He pointed to a forecast from the Australian Energy Market Operator that gas will provide 12 per cent of generation capacity by 2030.The producers argue that the Tesla battery's impact has been predominantly in the frequency control market with only a marginal effect on wholesale power, where they see no material effects until mid-next decade.Still, the turnaround has been dramatic.EnergyEdge's Mr Stabler noted that in October, gas fuelled only 5.9 per cent of power generation, and blamed the continuing increase in gas costs. Gas prices averaged over $9.75 a gigajoule in the December quarter, not far off the record set in the March quarter of 2017 and more than double a year before that."Gas is losing out to a combination of coal and renewables, and hydro in particular," said Graeme Bethune, principal of EnergyQuest, which found that gas use for power generation in Victoria slumped 44 per cent in the September quarter compared to a year earlier.He said AEMO had been forecasting a significant fall in gas use for electricity and that seemed to be playing out, given gas plants ran at an average of 14 per cent capacity in the September quarter."I think it will reach a point where we bottom out and gas continues a role in peak power generation," he said.Still, Wood Mackenzie is among those suggesting that a reliability obligation as proposed by the government in the wake of the collapsed National Energy Guarantee, or a total overhaul of the NEM to introduce a so-called "capacity" market is needed to prevent gas plants shutting, putting reliable supply at risk.AGL chief executive Brett Redman has pointed to the need to consider a "capacity" market, where plants needed for security of supply are paid to remain ready for use even if they don't generate."These plants will have to be around for security purposes – imagine if there were six days of no wind, what would be charging the batteries," Mr Neoh said.But Origin says a capacity market isn't needed, while Alinta isn't convinced either."Whether it's via a capacity market or reliability mechanism, the key is keeping the services they provide in the mix in the most cost-effective way, rather than picking winners," Mr McClelland said.For gas-based manufacturers, the trend plays in their favour because it frees up gas in the stretched market for their use.
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