Gas and Energy

Senator VAN: As you're all aware, the government has recently announced a comprehensive plan to secure Australia's gas well into the future. Gas is obviously used for much more than energy generation. Can you outline the type of organisations you will engage with in the development of the National Gas Infrastructure Plan in how they use gas?

Ms Parry: Thank you for your question. As we talked about this morning, gas is a very critical fuel for the manufacturing and CNI sector and also for the power generation sector. As a result, we have a lot of interest in the gas measures and the gas announcements that the government made through the budget and just prior to the budget. We have started those conversations and we'll be working very closely with producers. We will be working very closely with pipeline and transportation companies. We will be working very closely with the CNI sector and the manufacturing sector on the customer end. We will be looking and working with those proponents who are looking to build import terminals as an infrastructure mechanism. We will also be engaging very closely with expertise within the energy market bodies, so the Australian Energy Market Commission, the Australian Energy Regulator and Australian Energy Market Operator. We have a very close working relationship with the ACCC and their ongoing gas inquiry, and we will be working very closely with them through this process as well. As I indicated this morning, AEMO are coming out with their next gas statement of opportunities in March 2021, so we will make sure again that we are lockstep with the kind of data and information that they are collecting. The minister and the department are very committed to ensuring we work very closely with stakeholders, as we have been and will continue to do. I do note that in some manufacturing sectors, energy and gas in particular, it can make up to 40 per cent of their input costs. So gas is a key component and a very key driver to their business. Gas is often the price setter in the NEM for the electricity market. So continuing to drive down gas prices is really critical for the electricity sector, as well as the gas sector.

Senator VAN: Thank you very much. I am coming to you from the great state of Victoria that's been terribly restricted by the Andrews Labor government recently. Not only are it citizens restricted, but gas has been for some time too with the restrictions on exploration and production in Victoria. Given that we know that the supply of Bass Strait gas has been decreasing over the last 10 years, do you know how much it has decreased by to date?

Ms Parry: Sorry, Senator, can I get you to repeat that question? I didn't catch the end of it.

Senator VAN: Sure. Sorry. How much has the supply of the Bass Strait gas field decreased over the last 10 years?

Ms Parry: I may have to take that question on notice, unless my colleagues in the room—

Senator VAN: It is quite okay if you need to.

Mr Sullivan: The largest decline in production around Bass Strait will begin, from memory, in 2022 on current projections. In terms of east coast supply, that correlates to when we are starting to see shortfalls in the outlook around gas supply in the east coast market. With respect to the overall trend in Victoria, we would have to take that on notice in terms of—

Senator VAN: Of course.

Mr Sullivan: But my recollection is that from 2022 onwards is when the current decline is projected to really kick in.

Senator VAN: That was my understanding too. Given that, are you aware of any resources that have be developed in Victoria to counter this decrease, or are you aware of any prospective locations where the decrease in supply could be replaced?

Mr Sullivan: We can go into this in more detail. I will speak to other senators around the resources outcome next week during the economics committee. From recollection, there is still offshore development happening in Victoria with prospective areas. From memory the companies are Beach Energy and Cooper Energy. I think ConocoPhillips is still looking at other sources. We're also talking with respect to potential further development in the Gippsland and Otway Basin.

Ms Parry: There are five prospective import terminals dotted around the country, and that's being actively looked at as well.

Senator VAN: That brings me to my next question. If Victoria won't unlock its own gas fields and if we have to import it from other states, or maybe even from overseas, can you give us some sort of picture of the difference in transportation costs? Let's say rather than gas coming from Bass Strait to the rest of Victoria, what are the prices if that gas is coming from Queensland or maybe the Northern Territory or the North West Shelf?

Mr Sullivan: The cost of transporting gas is related to how far the gas has to go. With respect to transporting gas from Wallumbilla to the entry point for the Victorian transmission system it can be $2 to $2.30 a gigajoule to transport the gas. It would be a lot more, over $4, if we were taking that from the Northern Territory. When we talk about a National Gas Infrastructure Plan we are also talking about looking at reforms to the costing process and the transparency and the fluidity of that market. That's part of the objective of looking at how we can bring those prices down as well with respect to pipeline costs.

Mr Fredericks: It's worth contrasting those costs with the costs from Victoria, which you noted. My understanding is that to transport gas from Longford, for example, into the Victorian transmission system is somewhere between 8c and $1.62 per gigajoule. If you compare that to the two to three from Queensland and four to six from Darwin, I think it is quite important.

Senator VAN: It is a huge impost on Victorians, particularly Victorian industry.

Ms Parry: That is certainly one of the objectives of the infrastructure plan, as well as to look at not only around transportation costs but also efficiency of transportation. So, are there compression technologies, for instance, that can move gas more efficiently—and, again, to keep driving down those transportation prices?

Senator VAN: No doubt about it—it is cheaper to produce it in Victoria.

Ms Parry: Yes.

Senator VAN: Take that as a statement or as a question, if you like. Going to the Technology Investment Roadmap and the five priority technologies that were chosen. Does Australia have a comparative advantage in those technologies?

Mr Fredericks: I will take that one. We extensively canvassed this in estimates, under outcome 2.2, I think it was. The short answer is that the priorities themselves were determined by a very intensive consultation process—a panel led by Chief Scientist Alan Finkel. The evidence that was given by Deputy Secretary Jo Evans today is that, yes, through that process essentially those five technologies were identified—you could use the words comparative advantage, you could say the ones in which we have some sort of advantage—but at the end of the day what is crucial of the selection of those five technologies is that they are the ones that have been identified as those that have a very strong chance of reducing emissions as low as possible. We had quite an extensive discussion about whether it was to zero or whether it was very low. I think we collectively, as a group, settled on very low. That was the defining characteristic to get a selection of those five technologies.

Senator VAN: I wasn't on camera at the time, but I was there for that conversation. It is fantastic. I think we should be very proud of that. That there is the 1,000 megawatt dispatchable capacity investment target. What type of generation projects will contribute to that?

Ms Parry: In terms of the types of generation that government is looking for to fill that gap, clearly it would need to be dispatchable, it needs to fit into a 24/7 system, it needs to come to a final investment decision by April 2020-21 in order to deliver by 2023-24, when Liddell goes offline. The government is interested in looking at any of those technologies, whether it is gas, whether it is pumped hydro—any dispatchable capacity that can support and firm the system and not only provide that system security benefit, provide a supply shortfall, but also again continue to put downward pressure on prices.

Senator VAN: And one of those would obviously be batteries?

Ms Parry: Yes, again though, as long as the batteries are participating as bidding into the wholesale market— not necessarily just the aftcast market, because, as we have seen, batteries have a duration. But pumped hydro, for instance, can be considered a battery and—

Senator VAN: You started to touch on my next question. How long can the longest-lasting utility-scale battery currently in NEM be used for?

Ms Parry: It is two hours.

Mr Fredericks: My understanding is that in the NEM there are currently 260 megawatts of large-scale batteries installed and they have a maximum storage duration of around two hours.

Senator VAN: That is collectively?

Mr Fredericks: Correct. It is worth noting that, in 2019, that contribution by batteries, as I just defined it, represented about 0.03 per cent of total generation in the NEM.

Senator VAN: It's not really enough, is it? A lot of commentators and media say that with renewables all we need is batteries and, you beaut, job done. That is not true, is it?

Mr Fredericks: Again it pulls up a conversation we had earlier in the other estimates around the tech roadmap, and Minister Taylor has said this a number of times—I think it is a case of having as many horses in the race as we can. At the moment batteries, and their capacity to deliver to the NEM, are limited, but the tech roadmap is about pushing that and seeing whether there is an opportunity for that to make a bigger contribution. That is a good thing. Simultaneously, of course, we need to ensure the maximum reliability of the system, as it is now. What that requires in a system that is increasingly relying on renewables is an increase in firmed generation capacity. That's why—to round up a few conversations here—the UNGI program is specifically directed at trying to secure greater dispatchable generation capacity. The Vales Point grant is ultimately about trying to secure greater dispatchable generation. Ultimately, the work that this department will do on gas and the development of gas resources across Australia, one of its reasons will be to try to increase the capacity for gas to be a producer of firmed generation capacity, as well. So, to pick up Minister Taylor's language, there is a range of horses in the race and the government is making a strategic decision to invest in those, with a view to maximising the firmed generation capacity of the country and of the NEM in particular in order to support the ongoing and potentially growing reliance on renewables.

Senator VAN: So, is net zero emissions practically and economically possible without further advances in technology?

Mr Fredericks: I think we had evidence earlier in the day that it will be extremely important, if not vital, for there to be some step-changes in technology in order to chase down that target. In fact, as Jo Evans put it, the whole philosophy behind the tech roadmap is to identify the technologies that are at a reasonably early stage but have the capacity to create that step-down change in technology at some point in time in the future. So, in a sense, the answer to your question is, most likely, but more importantly, the government has prioritised and is focusing the investment of government and trying to induce the investment of the private sector into those technologies that are the best chance of driving those step-changes in technologies that are necessary

Mr Parker: We are seeing investment in 2020—that is, actual investment on the ground—is pretty much the same as last year. This story of the collapse has been around for a couple of years. A number of commentators have pointed to it and looked for it. Some claim to have found it. But in our view, it is not true. We monitor the pipeline for renewables investment very closely. It is certainly true there was a boom a couple of years back, in 2018, as the industry built towards the renewable energy target. The renewable energy target has more than enough capacity now built to meet that. Some commentators said, 'Oh, well, that means things will collapse.' Our view has long been to the contrary, and the evidence strongly supports the view that industry is getting on and investing, basically because renewables are effectively commercial at this point. It's a very lumpy thing, so you can either measure investment at the end when the thing is built or as it is being built or as it is intended to be built. Some of the commentators who have talked about a collapse have been looking at the investment intention stuff. But in our view, they have not measured it in history very well. We monitor that pipeline very closely. We said earlier in the year, where it looked like things were a bit soft, that we expected between two and three gigawatts of investment to get past the investment intentions point this year. Obviously that was in the teeth of COVID, with exchange rates moving all over the place and so forth. So there was a bit of a slowdown in investment intentions at that point; that was earlier in the year. We said at that time that we expected between two and three gigawatts of capacity to get past the investment intention, final investment point this year. There was a fair bit of scepticism by some of those commentators. I can tell you we are now at 2.6 gigawatts past the financial investment decision at this point already this year. So there's nothing like a collapse going on. The industry has settled back a little in terms of large scale after those boom years, but with very substantial levels of investment. The rooftop sector is going from strength-to-strength, meaning that Australia is actually investing, in terms of what is ahead, roughly about 10 times the average of industrial countries and four or five times the next highest level of investment. That degree of investment is incredible taken in that global context. It is so fast that it is raising some challenges for the grid operator AEMO. They are working through those. This is a leading-edge challenge, if you like. Other countries are looking at what is happening in Australia, to see how we handle that very high level of investment.

Senator VAN: How does Australia's level of investment compare to other countries? You mentioned it was racing ahead, but can you give us a comparison?

Mr Parker: I will ask Mark Williamson to give you the details.

Mr Williamson: The Australian National University published their last article on this on 3 September 2020 and, as Mr Parker said, in terms of per capita installation—watts capacity per capita—they've said 10 times faster than the global average and four times faster per capita than in Europe, China, Japan or the USA. That's on 2019 data. They've got our estimates in that paper for 2020, which are the same as 2019. We'll need to wait and see. IRENA is the data ANU uses to compare with. I guess they'll be able to do the next comparison after the end of this year. Other countries would have to race well ahead per capita to get anywhere near the rate that Australia is at. At this stage, we think next year, 2021, looks to be at a similar level as this year and last year. For this year and last year, a total of 6.3 gigawatts was added. To put that into context, back in 2016, the total was just over 1.2 gigawatts and next year is looking to be a similar order of magnitude as for this year and last.

Mr Parker: Which is over six gigawatts.

Senator VAN: Even with COVID and restrictions—more in some states than others—has there been any slowdown in household solar installations? Mr Williamson: After the first quarter of this calendar year, which was largely before COVID had hit—and COVID really got pronounced in the middle of March—installations had already been locked in. It was early days for COVID. Things were up about 30 per cent year on year from 2019. During the second quarter and COVID— and this has been maintained—it's really jumped to over 40 per cent year on year. COVID appears to have accelerated the uptake. Last year there was a total Australia-wide of 2.2 gigawatts, or 2,200 megawatts, of rooftop solar. This year we believe rooftop solar in the small-scale scheme will hit 2.9 gigawatts, and that includes with the Victorian lockdown. Installations will be able to be done in the metropolitan area of Melbourne starting soon, with the easing of some of the restrictions, but there is, in fact, a big backlog of jobs in metropolitan Melbourne. We understand that could be about three months. I think, if it hadn't been for the lockdown in Melbourne, rooftop and small-scale scheme would have hit the three gigawatt mark. If you count rooftop solar in the bottom end of the large-scale scheme, it will go past three gigawatts this year. Essentially, the insight I can give there is that payback periods are quite short in most capital cities. A crude average is about four years. But, if you're working from home, you've got a lot more load at the time of generation during the day, so that probably pulls the payback period into about three years. That may explain why there's probably been an uplift as a result of COVID. Home improvements generally are up.

Senator VAN: Thank you.