Clean Power

Published on August 13th, 2014 | by Guest Contributor


Choosing Gas Could Cost 40% More Than Renewable Energy

August 13th, 2014 by  

By Sophie Vorrath

Relying on gas-fired electricity generation “as a serious option” for reducing greenhouse emissions and cleaning up Australia’s power sector could cost up to 40 per cent more than a shift to renewables, and leave Australian households $500 a year worse off, a new report has found.

The UNSW report found that rising and uncertain gas prices were likely to create a market where investment in renewable energy generation would become the cheaper and lower risk option for Australia.

In modelling from the Centre for Energy and Environmental Markets (CEEM), researchers compared the risks and uncertainties in using gas-fired electricity or renewable technologies as part of a low-carbon transition.

The results found that, electricity costs would be lower and more certain with a diverse portfolio of renewables – including wind, solar photovoltaics, hydro, and others – while electricity portfolios with heavy reliance on baseload gas-fired generation could result in 40 per cent higher wholesale electricity costs.LNG-Natural-Gas-Exports-201206142

Lead researcher, Dr Jenny Riesz, said that the modelling had specifically incorporated uncertainty and risk – a factor she said was neglected in most studies – and that this had significantly affected the study’s results.

“No one really knows what international gas prices are going to do in the future, or how precisely our domestic prices will be linked. This means that relying on gas is a big gamble,” Riesz said – a gamble that the study found could cost a typical Australian family of four almost $500 more a year.

“By contrast,” she added, “renewables are a sure bet.”

Gas-fired electricity was also found to be much higher risk than renewable generation, being exposed to large uncertainty in future gas and carbon prices – unknown elements that could increase the cost risk by a factor of more than three.

Australia’s looming role as a major gas exporter adds a further dimension to price uncertainty.

“Domestic gas prices will be linked to international gas prices,” Riesz said.

Dr Riesz used the study’s results to urge decision makers to consider such an outcome in their deliberations on the current RET review.

“Gas electricity can provide useful backup supply, but we’re probably looking at higher costs if we use it for baseload energy,” Riesz said. “Renewables can provide bulk power more cheaply and at lower risk”.

But the report notes that the government would need to consider “other types of market intervention” to promote investment in renewable generation.

“Ongoing growth in renewable generation could be achieved via an expansion and strengthening of the existing Renewable Energy Target scheme, or via a suitably high carbon price,” the report recommends.

“Government intervention of this nature is likely to be required to achieve the levels of renewable energy indicated to be optimal in this analysis.

“If the Australian Government does not implement mechanisms to support the managed growth of renewable generation in Australia, this modelling suggests that consumers could be exposed to extended periods of higher than necessary electricity prices while the industry ‘catches up’ to the high gas and carbon prices that have eventuated. Gas-fired generators are likely to be able to pass these high costs through to consumers for an extended period.”

Screen Shot 2014-08-12 at 1.23.47 PMThe modelling also indicates that it is worth rethinking existing electricity infrastructure.

“We have a huge fleet of coal-fired generators in Australia. Analysis in the United States suggests that some coal-fired generators can be very flexible and shift to operating as peaking generators,” Riesz said.

“If we can use our existing coal-fired generators in a peaking role to back up renewables, we can reduce our greenhouse emissions at low cost, and low risk, without having to invest in gas-fired electricity. We need to better understand what those coal-fired generators are capable of.”

Source: RenewEconomy. Reproduced with permission.

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  • Wow. I can’t agree more with this analysis. Here’s what soaked in to my brain: deploy renewables and make due with existing assets – with the express purpose of using less of those assets moving forward. Kind of what Germany’s doing with its energy plan.

    Natural gas for coal sounds great. It makes sense, if you simply consider gas vs. coal combustion. But the entire infrastructure of gas, specifically from unconventional sources like shale and coal seams, is a huge endeavour. Wells, pipes, processing treatment, combustion, generation, LNG, CNG, etc. These are assets with at least a 40 year life. The gas industry isn’t planning to be a bridge, as much as the solution on the other side. So basically coal to gas is switching from Marlboro Reds to Marlboro Lights.

    Question for Aussies. Is Australia’s gas mostly from coal seams? This would be the crazy unhinged uncle of shale gas. Simplifying the process: a coal seam gets heated underground to release light hydrocarbons and methane, where it is collected in horizontal wells. The problem is many of the hydrocarbons like benzene don’t’ just go up into the collection well. They’re potentially going all over the place underground and potentially up to the near surface atmosphere (the breathing zone). This is being studied per Australia’s EPA equivalent. (aussies have a different word and expression than real english speakers)

    Initial study:

    Per Abbot, maybe?:

    And a Monash professor

    “Coal Seam Gas: future bonanza or toxic legacy?”

    • Ronald Brakels

      In the past Australia’s domestic gas use come from conventinal natural gas deposits. But now new gas wells are mostly coal seam but about 15% involving fracking. As a result of increased natural gas production gas prices have massively increased in Australia and will continue to do so until they are about two and a half times what they were. This is because in the past we didn’t have enough gas to export from the mainland, but now we do prices are soaring to match international export prices. And this means Australians are giving up on natural gas as we’ve got other stuff that is cheaper. (Some stuff that is good, and some stuff that is very very bad.)

      • So Australia’s plan is pretty much the same for US. US gas is cheap now due to overproduction, at around $3 to $4 per MMBTU. That’s too cheap for investors liking. Plus the intermittent and seasonal demand doesn’t help producer’s cash flow. Producers don’t like to throttle back at the well. Flow rate (mass flow) is how they get paid. So we’re building LNG facilities for export and building a domestic natural gas economy. All to fight climate change, of course. Did you guys write our energy plan?

        Thanks for the information.

        • Ronald Brakels

          You are too late. The current high international prices appear unlikely to last. And this will be more than apparent by the time new US export facilities come online and the US won’t be able to lock in long term contracts at a good price as a result. Japan is now rapidly installing solar and cutting down on it’s need for gas and may or may not restart more reactors. China already produces about as much electricity per capita as Italy, is headed for an economic slow down, and is installing renewable capacity like gangbusters. (How do gangbusters install anything? With tommy guns?) Japan is the world’s biggest importer of natural gas (sort of neck and neck with Germany) but its imports are ready to crash before the US is ready. Just like proposed new natural gas export capacity in Australia is likely to suffer massive losses, so too is new US export capacity.

      • Oh, I almost forgot to ask you this. I live in Illinois, a farm state, that also has the largest coal deposit sitting below it in the nation. Much of Illinois coal is too deep and too thin to strip or deep mine. Coal seam gas or coal seam methane or in situ retorting or whatever it’s called is being discussed again. Based on literature reviews it doesn’t look good. A study done in the 1970s/1980s, an era not worried about groundwater, concluded environmental impacts should be considered in future. Fast forward today, this state has shale oil and gas fracking fever. It’s also one of the sketchiest states politically wise in the US. Based on my gut feeling it looks really bad. Any lessons learned from Australia? On coal seam gas I mean. Besides, of course, another excuse to jack up overseas sales.

        • Ronald Brakels

          Have some gosh darned environmental regulations. Only build your new natural gas wells where there is no one around or the population density is low, buy the old people in the closest town a ride on lawn mower for the local bowls club to shut them the heck up. When you spend a day spewing gas and contaninated water over the local area make sure the fine is only $2,000.

          • Brilliant reply. The first rule of answering environmental policy questions is use a movie reference. I’m assuming you were referring to “A Straight Story.” That was Iowa and Wisconsin, not Illinois. What, are you a New Yorker? That was a reference to us middle Americans who live in the “fly over” states.

            Illinois passed fracking legislation last year. It was a deal done behind closed doors. It passed by something like 100 to 3 and was signed into law in 2 days. It was almost upended when oil and gas couldn’t drill fast enough. Regardless of the fact O&G pretty much wrote its own regulations. They are chomping at the bit to get at the New Albany shale in southern Illinois. Anyway, there’s concerns that this kind of shadiness will apply to exploiting Illinois coal with coal bed gas extraction methods. Illinois is our esteemed president’s home state btw. And Hillary Clinton’s. A potential future leader of the free world after 2016.

          • Ronald Brakels

            Actually, I wasn’t quoting a movie. I was summing up coal seam gas and fracking in Queensland. Having said that, spewing around gas and contaminated water doesn’t seem to be a $2,000 fine in America, it seems to be business as normal. Our gas drilling doesn’t seem to be as shady as in the US, but then I guess it doesn’t need to be when our current leadership is willing to openly destroy legislation that protects the environment and then boast about it.

          • My bad. Straight story was about an old man who drove his riding lawnmower from Iowa to Wisconsin. It reminded me of your answer. There was a reason he did that, but I forgot. Most people can’t tell one cornfield state from another. Us Midwesterners are sensitive about that.

            US has been doing a lot of environmental workarounds and out right avoidances in the name of security and jobs. It’s a mess. We are foolishly taking pride in lowering carbon dioxide emissions from ten years ago. The reduction has mostly to do with offshoring manufacturing and transport emissions to China and elsewhere. But, some credit has to be given to efficiency, gas for coal generation and renewables. There was a time when we had awesome environmental policy the rest of the world could look up to.

  • JamesWimberley

    Right. It’s a straight fight between coal and renewables.

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