Gas and renewables – Australian Energy sector hit by double dose of government intervention

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Australia’s energy sector has been hit by a double dose of government intervention as the New South Wales administration announced a renewable energy roadmap, with the Federal Government countering by confirming its support of gas electricity generation.

If that sounds like State and Commonwealth being at complete loggerheads with each other – you are absolutely right.

It is also having another totally undesirable effect of spooking private investment away from energy generation projects.

AGL has already stated that plans for a gas high-peaking plant and a battery storage project at the soon-to-be decommissioned Liddell coal plant are on hold “indefinitely”.

Energy Australia has also made rumblings about putting investment on hold, and there is talk of an orchestrated ‘investment strike’ by the large generation companies.

NSW Government state of play

The New South Wales State government has traditionally been the least interventionist in electricity matters, and at present, is the most heavily reliant state on fossil fuel generation.

But in a bolt out of the blue, the NSW state government announced a $32 billion investment package to focus on renewable energy generation in rural areas.

The goal is to create 12 GW of new renewable energy capacity over and above the “business as usual” scenario with an additional 2 GW of storage coming online by 2030.

To put this into context, New South Wales has the biggest energy grid in Australia. The goal of the roadmap is to cut electricity generated emissions by almost half, from 180 million tonnes annually to some 90 million tonnes. 

But to do that, NSW needs to replace 9,000 MW of generation capacity quicksmart.

The Eraring, Bayswater, Liddell and Vales Point power stations are all set to close by 2035, and so far, there are no concrete replacement proposals.

The Federal Government’s position

The Federal Government, on the other hand, has stated that NSW’s roadmap, will put pressure on existing coal generation plants and could drive them out of business early.

In fact, Energy Minister Angus Taylor clapped back at the plan, by reiterating the Federal Government’s support of gas-fired electricity generation.

Mr Taylor said that if push came to shove, the Federal Government would reignite plans to construct a new gas peaking plant in the Hunter Region (not far from Liddell) through it’s Snowy Hydro arm.

What the Energy Ministers are saying

NSW Energy Minister Matt Kean says that the roadmap will drive prices down and ensure the lights stay on. “We need a roadmap because there were not the right market signals in place, because we didn’t have the right regulatory settings.

“Liddell is about to close and the infrastructure required to keep those prices low and keep the system reliable, wasn’t built in time and that’s why (Federal) minister Taylor has had to intervene directly in the market.”

“We want to avoid such distortions, we want to make sure that we provide a clear roadmap, the clear long term investments signal so that developers can invest with confidence and build the kit that we need to keep the lights on and drive prices down.”

Mr Taylor, on the other hand said the Federal Government wants to see Australia remain a leading user and exporter of fossil gas.

“The role of gas in manufacturing is far broader than is typically acknowledged.

It provides direct heat, it is a chemical feedstock, and it plays a pivotal role in the price of electricity,” Taylor said at the recent AFR Energy Summit. “Affordable reliable gas can make a remarkable difference across all three of these areas, whilst at the same time bringing down emissions.

“To demonise gas, as many seek to do, is both irresponsible and intellectually dishonest.

The Commonwealth Government is committed to Australia remaining as one of the top liquefied natural gas – LNG – exporters in the world.”

So what is actually happening?

Put simply, the NSW state government is tired of waiting for the Federal Government to come up with a comprehensive plan to replace its coal fleet. And therefore, it intervened. 

The Federal Government is adamant that coal and gas still have a home in the electricity generation sector, and so it is threatening to intervene as it has in the past. 

So in reality, both players here are advocating state or federal government intervention. Some observers argue that the NSW plan will put private investment in the driver’s seat, but it is still intervention, nonetheless. 

How has the market responded to government intervention?

In short, not very well. Australia’s coal and gas lobby has come out all guns blazing against the NSW transition plan. 

Some have threatened legal action and an investment strike that could lead to higher prices and raise fears of a supply shortage.

Trevor St Baker, the influential owner of the ageing Vales Point coal generator in NSW, led the charge, threatening legal action over what he describes as the “gross intervention” in the market by the NSW government.

His comments were supported by the country’s two biggest private operators of coal generation in Australia, AGL (also the biggest polluter in the country) and EnergyAustralia.

As already stated, these two behemoths of energy generation have threatened to put investment on hold.

Who is right?

Time will tell, but many analysts believe that the NSW plan is a sound one, which will see cheaper (and cleaner) electricity being generated and distributed by privately-owned companies.

The fossil fuel industry has fought every major policy initiative of the last decade,  from carbon pricing, to renewable energy targets, to rooftop solar installations, to energy efficiency, demand management, and even the change to five-minute settlements.

Keep up-to-date on the government’s energy policies and programs

Energy policies may impact electricity and gas costs, so it’s crucial to keep abreast with any developments in that arena like NSW’s recently announced $32bn Renewable Energy Roadmap. You can do that by reading our blogs and news articles or subscribing to Leading Edge Energy’s newsletter.

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