Dependence on gas supplies in the NEM

  1. Index
    1. Background
    2. About the Emissions Trading System
      1. Timeline of Generation Development
      2. The Risks in Gas Supplies
      3. Risk Management

  2. Background
  3. Our Managing Director spoke at the “Australian Energy & Utility Summit 08” in Sydney on Tuesday 22nd July 2008.

    In his presentation, Paul touched on a number of issues, including the following:

    As an aside to these separate pieces of analysis, Paul made a few points with respect to the implementation of the Emissions Trading System, scheduled for introduction from 2010.

    It should be noted that these ideas are not originally Paul’s by any means, but are noted here because they are worth further consideration.

  4. About the Emissions Trading System
  5. The following slide was used as the starting point for discussions during the conference:

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    The key points were as follows:

    1. Timeline of Generation Development
    2. The whole purpose of implementing an Emissions Trading System covering the National Electricity Market is to create a market (albeit one based on regulation) that will stimulate market forces to provide the least cost way to deliver more rapid replacement of existing generation stock with newer, less-carbon-intensive, generation capacity.

      The specifics of how this turn-over in stock occurs will depend very much on the final nature of the scheme, and the nature of compensation paid to the coal-fired generators.

      However, it appears likely that there will be three general phases through which the NEM will progress, as follows:

      • In the initial period (assisted by the compensation provided) coal-fired generators will continue to operate, and sell their electricity generated at a higher (carbon-inclusive) price.  This will provide sufficient time for a large number of combined cycle gas plants to be developed;
      • Following the development of combined-cycle gas plant, the coal fired generators will progressively close – leading to a interim situation whereby the bulk of electricity supplied in the NEM is produced from gas-firing;
      • After a series of technological (or political) breakthroughs are achieved, one (or more) new zero-emission (or near-zero-emission) technologies will be deployed.  Whilst no-one can know for sure which technology(ies) will be the winner(s) in this race, it is possible that these technologies might include:
        1. Nuclear (if a political will is found to change);
        2. “Clean-coal” incorporating geosequestration in some form;
        3. Geothermal; and/or
        4. Major installations of solar thermal technology.

      This scenario would see that gas supplies (coal seam or otherwise) would be the majority fuel supplied to power the NEM for a large number of years.

    3. The Risks in Gas Supplies
    4. Currently, the coal-fired generation capacity across the NEM is supplied from many diverse coal mines across the NEM – many of which have no physical transport connection with other mines.

      In terms of security of supply in the NEM, this situation is a positive for the NEM, for it means that any disruption to fuel supplies at one site (such as happened at the Yallourn plant in summer 2007-08) cannot transfer to others.

      However, with gas supplies, the situation is very different, with all gas plant supplied from common transmission facilities.

      • Especially in the Australian
        context, where there is a relatively low amount of redundancy built into the gas supply system, this could prove especially problematic;
      • Based on the facts, the Australian gas supply industry does not have a promising track record of reliable supply, with three major disruptions experienced over the past 10 years:
        1. The Longford explosion in September 1998
        2. The Moomba explosion in January 2004; and
        3. The recent explosion on Varanus Island (in Western Australia) in June 2008
      • Whilst the first two incidents were critical in their own right, the effects of them would have been far more severe had the NEM been reliant on these gas supplies for the bulk of its generation.
      • The difficulties reported in WA are indicative of the wider impacts such a disruption would have in the east if the NEM was dependent on gas supplies for generation.

    5. Risk Management
    6. It would seem prudent that this issue be at least considered in further detail to explore what might be done, if the future does unfold as postulated above.

      It may be that some capital investment is required to provide additional redundancy for supplies – however there may be alternative means of providing insurance.

      For instance, it may be that some coal-fired plant is stored (rather than decommissioned) to provide supplies, should they be needed in this case.  A directive along these lines has been provided, for instance, with respect to the generation plant which is being closed in the market in Ontario, Canada.

About the Author

Paul McArdle
One of three founders of Global-Roam back in 2000, Paul has been CEO of the company since that time. As an author on WattClarity, Paul's focus has been to help make the electricity market more understandable.

2 Comments on "Dependence on gas supplies in the NEM"

  1. Re the comment about developing a large number of CCGT plant, I believe many of the existing open cycle plant will be quickly converted to CCGT once the full details of the ETS are know. Plant such as Braemar in Qld, Uranquinty in NSW were constructed with this in mind.

    • That’s a likely scenario.

      Even some of the smaller and/or older plants have been designed with the potential for conversion in mind (e.g. Quarantine), though the efficiency of some, post-conversion, might be too low to warrant the investment (compared to the option of newer, bigger, higher-efficiency CCGT).

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