Analysis by Paul Taliangis and Zhi Oh at Core Energy Group shows that the gas powered generation sector (GPG) in the NEM has reached its peak and is poised to enter a steep fall in consumption from over 200 PJ in 2014 to 100PJ or below by 2018.
In September 2013, Core Energy published an article “The Changing Role of Gas in the NEM” which presented a view that gas is likely to transition from a combined base, intermediate and peak role, to an increasingly upper-intermediate and peak only role in the NEM.
This article provides an update on the changing dynamics of the GPG segment of the NEM.
Recent GPG Consumption Near Peak
In 2014, (utilising data from NEM-Review) GPG gas consumption was approximately 215 PJ, an increase of almost 30 PJ from the previous year. The growth in GPG gas demand observable in Queensland is largely attributable to unusually low gas prices associated with short term LNG production (so called “ramp gas”). This has resulted from in gas prices of approximately AUD1.00/GJ in the Wallumbilla STTM.
Recent year consumption by the major NEM GPG generators is summarised in the following table.
Table 1.1 Major Generator Historical Gas Use, Generation & Projections
Gas Use in 2014
Generation in 2014
Gas Usage in 2018
Generation in 2018
|Tallawarra||NSW||17 PJ p.a.||2.4 TWh p.a.|
|Braemar 1||QLD||25PJ p.a.||2.1 TWh p.a.|
|Braemar 2||QLD||25 PJ p.a.||2.1 TWh p.a.|
|Darling Downs||QLD||27 PJ p.a.||3.5 TWh p.a.|
|Swanbank E||QLD||17 PJ p.a.||2.3 TWh p.a.|
|Osborne||SA||12 PJ p.a.||1.4 TWh p.a.|
|Pelican Point||SA||12 PJ p.a.||1.5 TWh p.a.|
|Torrens B||SA||16 PJ p.a.||1.3 TWh p.a.|
|Mortlake||VIC||20 PJ p.a.||1.6 TWh p.a.|
|TOTAL||ALL||171 PJ p.a.||18.2 TWh p.a.||85 PJ p.a.||9 TWh p.a.|
Sources: NEM-Review & Core Energy Group
Editor’s Note – corrected transcription error (TWh not GWh) following Tim’s comment
Core believes that GPG gas consumption has passed its peak and will enter a steep downward consumption curve as coal fired power and renewable energy edge it out of the base and lower to mid-intermediate load market.
The key factors bringing about this change is the repeal of the Clean Energy Act and associated removal of carbon tax, and the massive increase in absolute gas prices from an existing weighted average of approximately $4/GJ to a marginal cost $8/GJ (ex gas processing plant) by 2018.
Competition from Alternative Fuel Sources
At marginal cost of AUD8.00/GJ, the cost of gas-fired generation is estimated at approximately AUD60/MWh, with some variation depending on the generator efficiency. Coal-fired generation, without the carbon tax, is in the range of AUD10/MWh for brown coal and AUD20/MWh for black coal. Coal has an evident cost advantage over gas, rendering gas uncompetitive for base load generation.
Gas also faces competition from renewable energy, with increasing renewable capacity, mainly wind power that services the base load demand. The penetration of solar PV systems with energy storage pose as a potential competitor to GPG in the peak electricity segment in the medium to long term. The ability to store electricity would enable households to change consumption patterns by charging batteries during off-peak and using stored electricity throughout peak period. This would see falling demand for grid-electricity during peak times.
Change is Underway
The signs of change are already evident in the NEM and in Core’s view this will accelerate during 2015-2017.
Announced changes include:
› Stanwell’s mothballing of the 385 MW Swanbank E CCGT late 2014. Stanwell plans to redirect gas and has started up coal-fired Tarong Power Station to replace Swanbank E generation capacity.
› AGL’s announced plans to mothball the 480 MW Torrens Island A in 2017.
The key changes will be focused on generators which have provided significant base or intermediate load to date – as observable in the Table above.
GPG Consumption to Nosedive
Core’s view of GPG’s declining trend is broadly consistent with the recently published AEMO 2014 NGFR – a marked downward revision from AEMO’s historical scenarios.
Table 1.2 GPG Annual Gas Consumption Forecast – Eastern Australia | PJ
Source: AEMO 2014 NGFR
In a high gas price environment, compounded with challenging competitive forces in the electricity sector, GPG is expected to halve by 2018. As previously stated, gas will continue to play a key role in upper intermediate and peak generation in the short term, due to operational flexibility advantages and lower price sensitivity in this segment of the load curve. Its role in the upper intermediate and peak generation could also face growing competition due to technological advances in the medium to long-term future.