"Distributed Gas: One third cheaper, two thirds cleaner and ready now"

Tom Foster and David Hetherington from the progressive think tank Per Capita examine the role of energy market design in Australia’s transition to a low-carbon economy. Link here to the study.

The research suggests enormous market design opportunity for Australia to reduce its total greenhouse gas emissions by 10% (~54 million tons of CO2-e) through distributed gas-fired power using private investment and existing off-the-shelf technology. Adopting distributed gas for new generation will significantly slow the growth in electricity prices, since distributed gas is almost a third cheaper than new coal-fired power.

The energy markets are distorted in favour of large-scale black and brown coal generators with hidden subsidies valued at over $5 billion annually, and incentives inhibiting new localised connections to the grid.

Per Capita Executive Director and report co-author David Hetherington says, “The Australian energy sector has a set of legacy distortions which artificially tilt the market in favour of coal-fired power. Intelligent market design removes these distortions, allowing us to slow the growth in electricity prices and rapidly cut our CO2 emissions.”

The key findings of the study are:
• Australian coal-fired power stations receive hidden subsidies of $5.3b p.a. with fuel and water purchased below market value.
• Once the impact of tri-generation is included, the cost for distributed gas-fired power falls to 6.6 cents per kWh, down from 9.8 cents per kWh fully costed including a carbon price of $20 per ton. This compares to 10.7 cents for black and brown coal, and 11.5 cents for large-scale combined-cycle gas turbine.
• Australia would reduce its greenhouse gas emissions by 10% if half the coal-fired power in the National Electricity Market were substituted with distributed gas-fired tri-generation. This would involve 8,050 new 1.5MW units and would cost approximately $14.1 billion, which could be paid for through private investment

The recommendations are:
• Level the ‘playing field’: Introduce a national carbon price covering the entire electricity sector, and price fuel and water inputs to coal-fired power stations at true market value.
• Offer incentives to distributed network service providers (transmission and distribution companies) for rapid connections to the grid and cap the percentage of connection applications the distributed network service providers are entitled to refuse.
• Roll out a national gross feed-in tariff scheme which does not discriminate between fuel sources or generation technologies.
• Install distributed gas-fired power generation in the 19,000 new social housing units currently under construction by the Federal Government.
• Establish a public/private energy aggregation company to pool savings from energy efficiency measures.
• Roll out smart meters on a national basis building on the Victorian model, and Introduce seasonal and time-of-day pricing variation.