Positive gas initiatives but power grid boost is game changer

“The Federal Government’s package of energy initiatives includes a range of improvements to our gas markets but will also kickstart our energy grid,” Innes Willox Chief Executive of the national employer association Ai Group said today.

“Until the pandemic struck, industry had been struggling with high internationally driven prices for gas, and these in turn pushed up the price of power in a tight electricity market. Local gas prices are likely to follow international oil prices back up as the world economy recovers, but could go much higher if we let supply fall short of demand. Power prices may surge again unless we manage generator retirements well.

“The gas package extends and improves existing initiatives around supply, pipeline development and consumer protection. Extending the agreement with LNG exporters on security of local supply is important to avert scarcity. Studies to support future gas development will take time to pay off, but can be helpful. The reannounced review of a potential gas market reservation policy needs to begin meaningful consultation.

“The package can help limit the risk of future price surges, though gas prices are likely to remain driven by international factors. There is still an opportunity for a major push in the October and May Budgets on gas efficiency and fuel switching across the industry, commercial and household sectors. Significant improvements there would complement supply initiatives and limit the impact of any price pressures on final costs to energy users.

“The $250m fund to accelerate three major power transmission projects will make a huge difference. These projects are critical to the Integrated System Plan but regulatory assessment and squabbles over how to divide up the costs risk holding them back. Federal dollars were the only realistic solution and the Government has stepped up in a big way. These projects will help ensure the electricity system can access the diverse and dispatchable resources to keep our power affordable and reliable as it gets ever cleaner.

“By contrast the Government’s trigger to intervene in the power generation sector, by building its own gas generator in NSW, will likely never have to be pulled. In the latest energy projections, neither NSW nor any other region is expected to breach the reliability standard, based on announced supply and expected demand. We should be cautious not to demand more reliability than we are willing to pay for. Meeting the standard will be cheapest with demand-side response firmly in the mix, and with flexible gas rather than baseload gas. Finally, we note that the timing of final investment decisions often relies on progress in government approval processes, and April 2021 is a near deadline.

“Today’s energy announcements are a solid contribution to the medium-term outlook. While it isn’t the headline, it may well be the power grid boost that makes the biggest long-term difference for the better,” Mr Willox said.

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