Gas outlook highlights peaking plant role in transition

Apart from raising some alarm bells over future potential gas shortfalls, the release of the Australian Energy Market Operator’s assessment of gas needs again highlighted the important role gas generation will play in the energy transition. 

While electrification will have an impact on residential gas demand over time, gas will continue play a role in households and will be required for industrial processes. But where there is reduced gas for residential heating there will also be a higher electricity demand and in winter particularly gas-fired generation can also be expected to be called on to increase its output to meet any absence of renewables. This will be in the form of fast-start open cycle gas generators which are best able to support a grid with increasing amounts of renewables. The projected change in gas demand by usage is shown in figure 1.

Figure 1: Actual and forecast total annual gas consumption, all sectors, Step Change scenario, 2017-43 (PJ)

AEMO expects gas demand to reduce as shown above, supply, particularly in the southern states, is expected to fall faster and the market operator's Gas Statement of Opportunities 2024 (GSOO) highlights the risk of peak day shortfalls from 2025 if there is high system demand alongside demand from gas generations across this region.

The challenges are not unique to Australia. Consulting firm McKinsey expects US demand for gas to become more volatile in future – lower on average, but with spikes on peak demand days when renewables are less available. While there may be some longer duration storage options, such as hydro, in some geographies to cover multiday renewable droughts it expects gas plants to consistently be the most reliable option for backup power. It also forecasts gas-fired power generation (GPG) will be exposed to greater seasonal, daily and intraday volatility as a result.

The demand for gas-fired generation will increase in the National Electricity Market (NEM) overall. The draft 2024 Integrated System Plan (ISP) expects peaking gas power plant capacity to increase to 16.2 GW and a near quadrupling of firming capacity overall - gas sitting alongside hydro, pumped hydro and battery storage. Of the existing 11.2GW of gas plant the market operator expects about 8GW to retire or announce its retirement, so that capacity will need to be replaced and another 5GW added. Depending on the availability of longer duration storage options we may see this estimation change again in future given GPG is readily available and is an ideal complement to renewables.

Criticism of gas generation rests on its carbon emissions, while a challenge may be availability of gas at times as noted above, as well as the cost of gas – but peaking plants will not be expected to run for long periods and only called on at peak periods. Over time there is also the potential for hydrogen to become an alternative fuel source for new generation (which is discussed below).

AEMO identified gas generation as a “strategic reserve for power system reliability and security” with a typical peaking gas generator expected to generate around 5 per cent of its annual potential output but “will be critical when it runs” and most of that will be needed in the winter months. While gas has traditionally played a relatively small role in the grid, its ability to deliver quick, reliable supply when needed has always been important.  It already plays a role at peak periods (these have previously been during summer months but is changing dramatically with the increase in renewable generation). Previously, however, it has played more of a “mid merit” role in the grid. The expected change in the role of gas plants is illustrated in figures 2 and 3 below.

Figure 2: Gas-powered generation offtake, NEM (TJ/day 2014-15 and 2039-2040

Source: AEMO Draft ISP 2024. *This is based on AEMO’s Step Change scenario.

Figure 3

Source: AEMO

AEMO points to the fact that renewables firmed with batteries alone won’t ensure energy security as coal plants exit, hence there will be a broader role for longer duration technologies such as gas than was forecast two years ago.  

This is the case even in Victoria, a state where the government has shown no appetite for gas-fired generation or new gas supply and is banking on offshore wind, renewables generally along with battery and additional hydro storage to meet its reliability needs. AEMO’s Victorian Gas Planning Report Update states gas fired generation will increase to 3.6GW during the next decade and forecasts it will play a crucial role in complementing battery and pumped hydro generation.  This will particularly be the case during winter months when availability of renewables will be lower. The peak demand for gas-fired generation during the colder months is expected to increase by around 50 per cent over the next four years, and then step up by an extraordinary 266 per cent, needing 440TJ a day during winter 2028 following the expected closure of the Yallourn Power Station.

The impact of the growth in the projected need for gas-fired generation on gas demand across the National Electricity Market and Northern Territory is shown in figure 4.

Figure 4: Actual and forecast GPG gas consumption (NEM and NT annual and seasonal maximum daily demand)

Source: AEMO GSOO

AEMO forecasts that if gas and electricity demands peak simultaneously, particularly during extreme conditions in winter there is a risk that gas supply to gas-powered generation could be impacted by pipeline infrastructure capacity and constraints. It sees a potential for more onsite gas, diesel or hydrogen storage to deal with this. It also argues avoidance of gas network bottlenecks should be a consideration in siting new gas-powered generation.

The potential for hydrogen to play a bigger role has been much discussed. The unknown here is the timing, but newer generators are being installed with the capability to use hydrogen alongside natural gas. The most recent is the Tallawarra B open cycle gas plant (320MW) which was opened in February and is New South Wales’ first new gas fired plant in more than a decade.  EnergyAustralia is continuing to assess the feasibility of using hydrogen in Tallawarra B’s fuel mix by the end of 2025 but this is dependent on the development of a hydrogen manufacturing industry of an appropriate size and scale. 

In April upgrade and overhaul work on the existing Tallawarra A power plant will begin and this will increase its capacity and efficiency from 440MW to 480MW and include enabling the use of up to 37 per cent green hydrogen as a fuel when commercially available. Tallawarra A is a high efficiency combined cycle power station.

The key issue for green hydrogen in particular is that it remains prohibitively expensive to produce and has not yet been proven viable at scale.

Snowy Hyrdo’s Hunter Power Project (initially 660MW) at Kurri Kurri in NSW is an open cycle gas plant that is expected to begin operating by the end of this year. It will operate on natural gas but also be hydrogen-ready. Its turbines are designed to be able to initially run on up to 15 per cent hydrogen and the aim is to increase this to up to 30 per cent hydrogen over time. As with Tallawarra, the ability to run on hydrogen will be dependent in part on the availability of green hydrogen. 

The advantage of open cycle plants is that they can ramp up quickly – Tallawarra B, for example, can reach full load within 30 minutes. Other gas plants using reciprocating engines, like Barkers Inlet (210MW) in South Australia, can ramp up within 5 minutes. You can find an outline of the different types of gas-fired generation along with their capabilities in a previous EnergyInsider.

There is little doubt that our grid and power systems overseas will need gas-fired generation to play a role as the shift to renewables accelerates. They will play an important part in ensuring reliability and system security in the form of peaking plant that can come into and out of the system quickly.