While coal remains the dominant fuel in the National Electricity Market (NEM), the share has decreased from 80 per cent a decade ago to 67 per cent in 2020. There are only four countries in the world more reliant on coal-fired generation than the NEM: South Africa, Poland, India and Kazakhstan.
Many agree that the future for coal is bleak as the surge in renewables and low wholesale electricity prices accelerate the exit of coal plants, but what does this mean for gas-fired generation?
EnergyQuest outlines in its latest EnergyQuarterly report that historically the strongest competitor for gas has been coal, so the exit of coal could potentially provide a major opportunity for gas.
While the outlook remains uncertain, EnergyQuest highlights that previous experience shows that in markets with high renewable penetration but low coal, gas maintains a significant market share.
While 2020 was not a good year for gas-fired generation in the NEM, there is more to the story than recent headlines suggest. Table 2 shows EnergyQuest’s estimates of the basic NEM generation numbers for the full year and also the fourth quarter of 2020.
One of the most important features of 2020 was the impact of the pandemic on electricity demand. Total NEM demand was down by 2 per cent or 4.1 terawatt-hours (TWh) to 200 TWh, the lowest level since 2014.
Things were worse for operational demand, essentially grid demand or demand for commercial generators, as opposed to residential solar. With a 2.4 TWh increase in solar PV, operational demand was down more, by 3.4 per cent to 187 TWh, the lowest level in over a decade.
Notwithstanding lower demand, there was an increase in renewable generation, with higher solar (+2.4 TWh solar PV and +1.6 TWh solar farms), wind (+0.9 TWh) and hydro (+0.5 TWh). As a result, coal and gas generation were both driven down.
Coal was the biggest loser, notes EnergyQuest, down by 6.1 TWh, followed by gas-fired generation, down 3.5 TWh. Coal generation was a record low, exacerbated by maintenance and outages in NSW generators. Nonetheless, coal remained the dominant NEM fuel in 2020, with a 67 per cent market share.
Gas-fired generation was down too, to levels last seen over a decade ago. The decline in gas-fired generation freed up gas for other markets, notably industrial buyers and liquefied natural gas (LNG) exports.
NEM renewable capacity continued to increase. The good news in 2020 was that total renewable capacity reached 25,079 MW. This is more than NEM coal capacity of 23,200 MW.
Solar PV output in the NEM continued to grow strongly. Wind output appears to have slackened in all states except Victoria although EnergyQuest states that this may change as additional capacity is brought online.
However, renewable capacity only generated 37 TWh compared with 134 TWh for coal. Notwithstanding the growth of wind and solar, renewables only supplied 19 per cent of the lower level of NEM demand in 2020, compared with 67 per cent for coal.
EnergyQuest highlights that renewables only generated 28 per cent as much electricity as coal. Based on capacity at the end of 2019, solar-PV averaged 21 per cent capacity utilisation, solar farms 22 per cent and wind 30 per cent compared with 66 per cent for coal, even with units offline at various times.
According to the AEMO Integrated System Plan, coal-fired generation is set to decline from 23 gigawatts (GW) now to 9 GW over the next two decades. This may occur earlier as coal-fired stations become increasingly unprofitable. However, based on South Australian experience, reduced coal generation is likely to increase demand for gas. While renewables supplied 59 per cent of the state’s generation in 2020, in the absence of coal, gas fuelled the other 41 per cent.
On 11 October South Australia set a new minimum demand record of 300 MW, 158 MW lower than the 2019 minimum. AEMO has noted that total solar output in the state was equivalent to 100 per cent of South Australia’s underlying demand for the first time on record, a world-first for a jurisdiction of its size. At the time, gas-fired generators were also online in the state, which was necessary for system security, with excess energy exported into Victoria.
On average, South Australian renewables operated at 25 per cent capacity in 2020. Gas capacity utilisation was also a low 28 per cent, reflecting lower demand generally and its role in backing up renewables.
Figure 11 of the report shows trends in NEM gas-use for power generation since 2013. Gas-fired generation increased in South Australia following the closure of the Northern Power Station in May 2016. Similarly, it increased in Victoria following the closure of the Hazelwood Power Station in March 2017.
According to EnergyQuest, it seems likely that the same will happen in NSW following the closure of Liddell Power Station in April 2023. Gas may be down but it is not out.
The other conclusion EnergyQuest draws from the 2020 result is that a massive increase in renewables will be needed to replace coal in the NEM. Renewable capacity would need to increase by a factor of 3.5 times to replace the depressed level of coal generation seen in 2020.
Research by Frontier Economics for the APGA concludes that in 2035 a NEM that is 93 per cent renewable generation and 7 per cent gas generation will be 36 per cent cheaper to run than one that is 100 per cent renewable.
While gas-fired generation declined in the NEM in 2020, the big loser in the South West Interconnected System (SWIS) in 2020 was coal-fired generation, down by 9.7 per cent. Total gas generation was flat. The gas share of total generation was 38 per cent. Total generation increased by a modest 0.3 per cent but, excluding solar PV, grid generation fell by 1.3 per cent. Total renewable generation increased by 20.4 per cent, giving renewables a 24 per cent share of generation, higher than the NEM share of 19 per cent.
Further information on EnergyQuest’s EnergyQuarterly can be found here.