MOODY'S: More renewable energy will mean more demand for gas-fired electricity

Mark Kolbe/Getty Images

One consequence of Australia’s increasing reliance on renewable energy will mean greater demand for gas-fired electricity generation, according to analysis by Moody’s Investors Service.

The ratings agency says energy price volatility from rising gas prices will continue in the utilities sector. Prime Minister Malcolm Turnbull called a crisis meeting last month to get a guarantee from gas producers on future domestic supply.

Moody’s says the underlying cause of the price swings are the mass exports of LNG and various bans, including in Victoria, on the development of onshore gas resources.

However, renewable energy, such as solar and wind, will also play a role because these often need backup systems to fill demand when the wind isn’t blowing and the sun isn’t shining.

“Based on the current policy settings, the electricity generation mix in the NEM (national electricity market) will be increasingly characterised by a growing proportion of renewable energy, with gas-fired generation required during periods of supply shortfall,” says Moody’s.

This chart shows the increasing volatility in energy prices across the states:

Source: Moody’s

“We note that the amount of gas used to generate electricity in these states has not materially increased, which indicates that rising gas costs for gas-fired generators are a key driver of the price volatility,” Moody’s says.

Moody’s says the proportion of energy from wind and solar will continue to increase over the next few years.

This chart shows the increasing trend in renewable energy as a percentage of total energy generated:

Source: Moody’s

Moody’s says rising domestic gas prices will continue to result in energy price volatility, mainly because of the linkages between gas and electricity prices.

This chart shows the fall in coal generated electricity and the rise in gas and renewables:

Source: Moody’s

“The direct financial impacts of energy price volatility will be manageable for state governments,” says Moody’s.

“Challenges revolve around implementing structural changes to the NEM to meet renewable energy targets whilst overcoming the intermittency of energy supply and rising gas prices.”

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