The paper, released by RepuTex’s carbon analytics service in conjunction with Standard and Poor’s ratings agency, forecasts the impact of the Australian carbon price mechanism on the shape of Australia’s National Electricity Market (NEM) through to 2020, examining the question of which fuel sources are likely to benefit most in the move away from coal generation.
According to RepuTex Executive Director Hugh Grossman the future of gas generation in Australia will largely be determined by the outcomes for both the gas price and the carbon price beyond 2015.
“While gas seems to be the logical replacement, the winner under carbon pricing may not be so clear-cut. We anticipate gas generation will increase from 11 per cent of our total fuel mix, however the extent of that win could be muted by the growth of export markets from 2014 and the expected increase in gas price levels.
“Any upturn in gas prices would see the operating costs of gas generators spike with it, making them less competitive relative to coal. Any gas price rise may therefore offset the effects of the carbon price, which would otherwise be favourable to the sector,” said Mr Grossman.
In the report, RepuTex models three gas and carbon price scenarios, to show the likely effect on the fuel mix of Australia’s NEM.
The first scenario, under a static gas price and high carbon price, is the only one to predict a surge in gas generation, showing it rising rapidly from today’s 11 per cent to around 31 per cent by 2020.
The other two scenarios, which both forecast higher gas pricing, paint a more mixed picture – with Scenario Two showing black coal continuing its dominance, while a drop in brown coal generation is covered by gas. Scenario Three shows gas generation growing, but at a much slower rate.
Mr Grossman said “Overall, the prospects of gas as transition fuel are not clear-cut. In the near term, we expect the gas price to increase and offset the impact of carbon price. Meeting carbon emission targets would hinge on renewables – and more specifically the potential improvement of renewable technology as a means to generate base load power. Should this occur, we may see renewable generation leapfrog gas altogether.”