Why a gas generator, South Australia? There are better options to lower power prices
South Australian Premier Jay Weatherill is a politician panicked by a cynical and misleading campaign by his SA Liberal party opponents and the federal government to blame the state’s high power prices and recent blackouts on his 50% renewable energy target.
He has rushed out a so-called energy plan which is more like a grab bag of overlapping ideas that will do little to lower power prices. Meanwhile, they run the risk of saddling SA energy consumers or taxpayers with hundreds of millions of dollars in extra costs to support gas-fuelled generators that don’t materially improve energy security when there’s a lack of gas to fuel them.
Before going on, it’s important to point out that South Australia’s soaring electricity prices and recent blackouts are nothing to do with the South Australian government, nor the state’s high levels of renewable energy.
Under a Howard government initiative, state governments agreed to delegate responsibility for energy security to national regulatory bodies.
Also, electricity supplies have become short and prices have soared, not just in South Australia but across the entire east coast electricity market, because of three things:
A significant chunk of Australia’s coal fired power stations and associated mines have got so old (in some cases decades beyond their original planned retirement date) that they have become unattractive for their owners to keep operating and are shutting down;
Gas prices have doubled and in some cases tripled because gas suppliers are now capable of exporting our gas to high paying customers in Asia. Complicating matters is that gas suppliers rushed in to sign export contracts and then subsequently found they didn’t have enough gas to fulfil them. This has left the Australian domestic market very short of gas.
Weak competition policies that have allowed both our electricity and gas markets to be dominated by a small number of suppliers.
The prime minister, Malcolm Turnbull, and the energy minister, Josh Frydenberg, would be well aware of all of this. But they’ve decided on a political strategy of blaming the South Australian government and renewable energy instead. The aim is to ultimately damage the federal Labor party which has a target for renewable energy to reach 50% by 2030.
Irrespective of these facts, the electorate holds state governments responsible for energy supply, so Weatherill has been forced to respond.
He has to respond fast to keeping the lights on – before next summer when demand soars during hot days driven by air conditioning.
One single measure within the plan addresses this: hiring 200 megawatts of large diesel generators which come in shipping containers that can be quickly installed. By comparison, a new large gas turbine power plant can take over three years to construct. Compared to alternatives like batteries or gas turbines, diesel generators are cheap to install. While they cost a lot to operate, the reality is that they might not even need to be switched on. They are merely an insurance policy to cover the risk on a very hot day that demand soars and other generators are out for maintenance.
But the Weatherill government has gone well beyond this. It has also committed to spend $150m to support the construction of the world’s biggest battery, and also $360m to build its own 250MW gas generator. It has also said it will implement a scheme where electricity consumers will subsidise the existing South Australian gas generators to produce power in preference to Victorian imports.
At this point Weatherill’s plan raises red flags. The Australian Energy Market Operator warned just last week that:
A projected decline in gas production could result in a shortfall of gas-powered electricity generation impacting New South Wales, Victoria and South Australia from the summer of 2018-19.
This suggests there’s not enough gas available to fuel the existing gas generators, so how will adding another one help keep the lights on?
And how does another gas power station, that will increase demand for gas that is already in short supply and very expensive in price, going to help lower electricity prices?
And if he’s going to sink $360m into a gas generator to address a 250MW shortfall in demand, why also provide $150m to fund the “world’s biggest battery” system as well?
At which point it might be worth asking – why not just build an even bigger battery system and dump the idea of a new gas generator altogether?
Battery prices have dropped 70% in the last five years. There’s another three years at least before SA could build itself a new gas turbine. If the South Australian government was sensible, it wouldn’t commit to gas or batteries or anything else for that matter. Instead, it would tender for the cheapest solution to deliver 250MW of fast-response power within three years.
But one should add the caveat that the SA government will need to seriously improve the speed at which it conducts energy procurement tenders. 15 months ago the South Australian government announced a tender to procure enough renewable energy to cover its own electricity consumption. Today it re-announced this tender in its energy plan which has made precisely zero progress in the meantime and been reconfigured multiple times.