Policy Sequencing: On the Electrification of Gas Loads in Australia’s National Electricity Market

Paul Simshauser () and Joel Gilmore

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Decarbonising our power systems requires coal plant to exit and be replaced by intermittent renewables, along with a diversified fleet of flexible firming plant (viz. batteries, pumped hydro, gas turbines). It also requires electrification of the gas market. In Australia’s National Electricity Market, certain jurisdictions have sought to pursue power system decarbonisation and electrification of gas loads simultaneously. Using 40 years of weather re-analysis data in parallel electricity and gas market models, we identify the generation plant investment task required to meet the primal energy policy task of minimising cost, subject to reliability and CO2 emissions constraints. The outstanding renewable investment task is very material, and accelerating electrification may have the unintended effect of entrenching coal plant for longer. Further, a large fleet of gas turbines is required to deal with intermittency during winter months when renewables experience annual output nadirs. Yet a larger gas turbine fleet produces an acute peak (gas) demand problem during critical event winter days. Electrification of gas customers reduces annual gas demand, but ironically, gas turbine output on those critical event days means there is little change in daily maximum gas demand. This is quite a paradox – electrification policy signals the structural decline of gas networks, yet gas turbines and supporting gas storage and pipeline infrastructure become critical to maintain security of supply. Careful investment planning and policy sequencing is therefore required.

Keywords: Electrification; Renewables; Natural Gas; Energy-Only Markets; Dispatchable Plant Capacity (search for similar items in EconPapers)
JEL-codes: D52 D53 G12 L94 Q40 (search for similar items in EconPapers)
Date: 2025-01-31
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