The latest report by the Australian Energy Market Operator shows there could be both gas and electricity shortages within the next few years on the country’s populous east coast – despite the nation being among the biggest LNG exporters in the world (and set to be the biggest by 2021).
Australian electricity prices have doubled in the past decade with the grid struggling to cope with the influx of renewable energy, and the closure of coal fired plants. More gas is required in place of the coal plants, but an on-going gas shortage has been made worse by local bans in onshore gas exploration, especially in the state of Victoria.
"We are facing an energy crisis because of this restrictions on gas," Australia’s PM Malcolm Turnbull said at a recent conference. "What we have now is a scarcity of gas driven by politics because state governments are not allowing exploration and development of onshore gas.”
"The Victorian government, in the absurd position of a 50% renewable target, has encouraged the closure of Hazelwood [coal power station]. They've seen that closed at the same time that they will not allow the development of gas resources in their boundaries. We need to have more gas, which will deliver more opportunities for industry and households."
Engie pullback
The Hazelwood coal fired plant, majority owned by Engie Australia, is to close 31st March. Engie chief executive, Alex Keisser, said the power station had been operating in a difficult national energy market environment for a “considerable period” and that investment could not be justified given the outlook for prices.
Along with the closure of Hazelwood, Engie also announced it had decided to appoint a financial adviser for the possible sale of the nearby 1,000MW brown coal-fired Loy Yang B power station – which provides up to 17% of Victoria’s power needs – and the 122MW Kwinana gas-fired plant in Western Australia, which supplies steam and electrical power directly to BP’s Kwinana oil refinery and power to the state-owned utility, Synergy. “If a sale process were to proceed, it would be expected to be completed by late 2017,” said Keisser.
The moves follow the sale by Engie of its coal plants in Indonesia and India earlier last year. In May last year, Engie’s then chief executive, Isabelle Kocher, told a French Senate committee the company planned a gradual withdrawal from coal-fired power generation, and that the share of coal in its energy mix would fall to about 10% from 15% over the next couple of years.
Distracted by the bright lights of Asia
In Australia big energy producers and users have called for an emissions intensity scheme for the electricity sector to bring down carbon emissions and provide certainty.
But switching from coal to gas could prove difficult due to the lack of availability and high price of gas. Mr Turnbull said he wanted a "serious discussion" with gas producers, which sell vast quantities of LNG for export, mostly to the burgeoning markets of India, China and northeast Asia. However, most of the fields and infrastructure is thousands of miles to the north and west of Australia’s demand centres in the country’s southeast.
"We must think very carefully about how we manage our electricity system," Mr Turnbull said. "In a rapidly changing market we must be keeping the lights on."
The concerns are similar to those in parts of Europe, where onshore gas development is often restricted, and flexibility is the new prized quality - as reserve margins tumble in the face of growing intermittent renewable capacity and the closure of polluting coal or nuclear base-load plant.