Energy Spectrum Australia

Energy Spectrum Australia | Issue 14

Welcome to the fourteenth edition of Energy Spectrum Australia.

The below extract has been taken from our fourteenth edition, and if you have enjoyed reading this article and want to read more about the latest developments in the Australian energy market, please contact Ben Cerini, b.cerini@cornwall-insight.com.au for more information.

Energy Networks Australia argues case for gas 2050 vision

Energy Networks Australia (ENA) published a new update to its Gas Vision 2050 analysis, arguing that a balanced path with gas decarbonisation and electricity would be cheaper than heavy electrification.

Published on 25 September, this report builds on the March 2017 Gas Vision 2050 document, which set out what the nation’s energy system would need to look like in 30 years’ time. The report was released by a partnership of energy industry associations including ENA, Australian Gas Infrastructure Trust, Australian Pipelines and Gas Association, Australian Petroleum Production and Exploration Association, Gas Appliance Manufacturers Association of Australia and Gas Energy Australia.

In the report, ENA argues that making use of existing gas infrastructure would be cheaper than large-scale electrification, based on a study by Frontier Economics. Figure 1 compares the costs of three scenarios for decarbonisation to a base case where the electricity sector reached net zero emissions in 2050 while unabated gas use continued to supply heat and feedstock to industry. The three scenarios are:

  • The blue hydrogen (formed from natural gas through steam methane reforming) scenario. According to the study, this is the lowest cost at a net increase of $13.3bn compared with the base case, driven primarily from gas that is cheaper than the cost of using electricity to run an electrolyser. This reflects that more gas is used in this scenario than the base case and that there are extra costs for carbon capture and storage. The continued use of the gas transmission and distribution networks means “no additional costs for upgrades for electricity generation and the electricity transmission and distribution networks”.
  • The green hydrogen (produced through renewables-powered electrolysis) scenario would see a net increase of $15.3bn compared with the base case. ENA says this reflects additional costs of electricity and hydrogen production as well as storage and hydrogen transmission. The scenario’s use of the gas distribution networks means that there are “no additional costs of electricity distribution in this scenario”.
  • The electrification scenario would see a net increase of $27.5bn compared with the base case. Similar to the green hydrogen scenario, ENA says there are savings in the cost of gas supply but additional costs for electricity generation, storage, transmission and distribution. This scenario also sees costs for hydrogen production to provide feedstock to industrial processes.

 The report makes good points about the costs of electrification – the major changes in infrastructure and the increase in renewables energy required. Given the market is already undertaking to deliver infrastructure to connect current projected renewables, full electrification could be upscaled to accommodate increased generation and demand benefitting from economies of scale and building the network out in anticipation of full electrification. There are questions around the reliance on blue hydrogen, which requires carbon capture, usage and storage (CCS), with the report assuming that CCS is priced at $40/tn, but we are yet to see a successful CCS project in Australia. From a policy and investment perspective its clear that both state and federal governments see hydrogen as a significant part of Australia’s energy future, however, if Australia does move towards electrification over gas/hydrogen, then there is a real risk that current gas pipelines and infrastructure could become standard assets over the next 20-30 years.