Australia is still investing heavily in new fossil gas projects. One of the nation’s largest and most polluting gas plants, Woodside’s North-West Shelf Project, was given a green tick last week.
The Australian government’s Future Gas Strategy emphasizes the continued use of gas beyond 2050, and the Australian Energy Market Operator (AEMO) has indicated gas will continue to play a role in Australia’s energy future during the transition to renewable energy.
And whilst gas use in eastern Australia has been declining over the past 10 years, particularly for electricity generation, the Australian Energy Regulator (AER) continues to allow the gas industry to make supernormal profits at consumers expense.
The Institute for Energy Economics and Financial analysis (IEEFA) has produced several reports in recent months which highlight how the narrative around gas as a transition fuel is outdated.
They’ve analysed the economics of household gas and shown how efficiently electrifying our homes and businesses saves householders money, saves on distribution costs, and reduces carbon emissions.
On the latest SwitchedOn Australia podcast the CEO of IEEFA, Amandine Denis-Ryan, explains how fossil gas continues to shape our thinking in Australia, why new gas supplies are not needed in the long term, and why we urgently need a nationwide plan for electrification.
“We need to reduce gas demand really quickly, and for advanced economies, it’s even faster,” Denis-Ryan says. “In the International Energy Agency’s 1.5 aligned scenario, they’ve got gas demand decreasing by about 80% by 2040, in 15 years.”
The ACT has set a target to get out of gas by 2045, and Victoria has implemented its gas substitution roadmap, but other states like Western Australia are still planning to increase their gas demand in coming decades.
Denis-Ryan argues Australia needs a national gas demand reduction target which provides clear, measurable goals to drive coordinated action across government, industries, and households.
Reduction targets would push industries, businesses, and households to electrify processes and appliances, such as heating and cooking. Targets also support innovation in demand management which will enable consumer energy resources to help transition the grid to renewables, using virtual power plants and time-of-use pricing.
Gas no longer offers the cost advantage it once did, while modern electric appliances have advanced to the point where they use a fraction of the energy of either gas appliances or inefficient resistive electric appliances.
“The Australian government doesn’t have comprehensive policies on how we’re going to electrify from gas in buildings and industry,” Denis-Ryan argues.
“We calculated that each year of delay in shifting to efficient electric appliances costs householders over $4 billion, so it’s a really big-ticket item, and a lot of savings to be gained.”
With gas prices roughly tripling in the last decade on the East Coast since domestic gas prices have been linked to international gas prices, the economics of electrification have completely changed.
“We haven’t seen the government keep up with that, and the policies haven’t kept up with the changes,” Denis-Ryan says.
A well-structured electrification plan would identify priorities, milestones, and sector-specific strategies. It would ensure a coordinated and managed transition, provide clarity on timelines, and help industry and consumers align their investments and decisions with long-term decarbonization goals.
Targets also stimulate research and the development of cost-effective solutions that help reduce the cost of new technologies, making electrification more accessible for more households and businesses.
“There’s a lot of ads on TV or in the newspapers or sponsored articles, where the gas industries spruik their future, and [claim] that gas is here to stay,” says Denis-Ryan.
She argues we need to regulate what the gas industry can and can’t say to consumers.
“We need to think about how to actually stop misinformation going to households and how to get the right guidelines for people.”
“It’s already hard to navigate for people in the industry, so for someone who’s not in the industry, it’s just really hard to understand what’s true and what’s not true and what’s in their best interest,” says Denis-Ryan.
The Australian Energy Market Operator’s latest system plan makes it clear that gas will play a reduced role in power generation, and there are risks and uncertainties surrounding increased investment in gas.
France has completely banned advertisements for new fossil fuel appliances. And in Western Australia the Economic Regulation Authority has proposed changes to the state’s consumer protection laws that would require gas companies to provide clear and accurate comparisons with electric appliances when they attempt to market their products and plans.
And whilst the gas industry tells consumers gas is here to say, IEEFA found the industry is telling the energy regulator something very different.
“What they were saying to regulators is they thought the future was electrification, and they asked for twenty times more money from the regulator to prepare for electrification,” Denis-Ryan says.
“That’s not something that should be allowed. There should be more guidelines in terms of protecting consumers.”
IEEFA research has found Australia is still connecting homes and businesses to the gas network at a rate of around 100,000 new connections per year. Investments in new gas infrastructure today will become obsolete as Australia moves towards net-zero emissions.
“We’re spending new money on networks, on pipes that are going to be used for a very short amount of time,” Denis-Ryan says. “That makes no sense.”
Gas infrastructure, such as pipelines and appliances, typically last for decades so new connections perpetuate our reliance on fossil fuels, and delay the transition to clean energy.
The ACT banned new gas network connections in December 2023 and from January this year new homes that require a planning permit in Victoria cannot be connected to the gas network. Several councils have also restricted new gas connections, but other states are yet to make a commitment to ban new connections.
IEEFA has found that ending sales of new gas appliances as soon as possible would deliver the largest reduction in gas demand while also reducing household bills.
A typical Victorian household could save around $1200 annually on energy bills by replacing gas appliances with efficient electric ones, and Victoria could avoid about $931 million in future costs for each year they opt for efficient electric appliances instead of gas.
Ending new gas appliances is critical for achieving Australia’s decarbonisation goals and avoiding financial burdens on consumers.
Despite evidence showing households can save about $1,200 every year from electrification, gas appliance sales are growing. Nearly a million gas appliances continue to be sold every year in Australia.
Several gas distribution businesses, which are responsible for delivering gas to households for heating, hot water and cooking, have offered rebates in recent years to encourage customers to purchase new gas appliances like instant gas water systems, heaters, and stoves.
While a rebate on the upfront cost of a new gas appliance looks appealing, it’s the gas networks that benefit far more than gas consumers. With gas prices and network connection fees set to rise, replacing old gas appliances with new ones, locks households into higher energy bills for years to come.
IEEFA estimates that each year these new gas appliances lock in an unnecessary $1.2 billion in lifetime energy costs for households across the country.
Victoria is the only Australian state that has banned gas companies from offering rebates or incentives to households for installing new gas appliances or connecting to the gas network. South Australia, New South Wales, and Queensland, have allowed similar rebates to continue.
IEEFA estimates that as households replace gas appliances with electric alternatives at the end of their life, starting in 2025, up to $3.5 billion in gas network assets may become ‘stranded.’
“But that’s also five times lower than the benefits that consumers would have from switching to electricity,” Denis-Ryan says.
Currently it’s the Australian energy regulator (AER) who decides what it costs to decommission these gas assets. As the gas industry attempts to accelerate the depreciation of these assets faster, the AER have allowed the industry to increase charges to consumers.
“The default setting is to make gas consumers pay for everything which we don’t think is really fair,” Denis-Ryan argues.
“If we don’t do this in a managed way, then it’s not going to be equitable, and it’s going to hit renters and low-income households harder.”
That’s because people who can’t afford to electrify will get stuck on the gas network and end up paying the higher prices.
“That really needs to be looked at, because otherwise it’s going to be the poorest consumers that bear the brunt of the costs.”
IEEFA has also shown that consumers have already overpaid gas networks quite significantly.
“We’ve looked at what we call super normal profits. That’s profits networks gain above their allowed profits because they are monopolies, and between 2014 and 2022 consumers already paid $1.8 billion in additional profits to networks,” Denis-Ryan says.
“It’s a shocking statistic.”
It turns out that every year the demand for gas is higher than what the gas networks advised the regulator.
“It’s not fair that consumers also pay if demand is lower than what networks expected.”
Denis-Ryan argues we need a plan to determine how the costs of stranded gas assets will be recovered in a way that everybody accepts. “I don’t think it should be all consumers. I think some of it should be paid by industry.”
Once consumers have electric appliances, they can shift when and how they use electricity in ways that can reduce their electricity bills as well as the overall costs of the electricity system
“The lowest hanging fruit here is hot water systems, because it doesn’t really matter when you heat your water, as long as you’ve got hot water when you need it,” says Denis-Ryan.
Most hot water systems are currently set to run at night, a legacy of years gone by when we had cheap coal-fired electricity at night. Now that the cheapest electricity is in the middle of the day when there’s a lot of rooftop solar, it makes sense to set heat pump hot water systems to heat water during the day.
“Once you start doing electrification efficiently, flexible demand and distributed energy resources together, then you really start having a big stack up of benefits for consumers.”
Currently there are no policies or regulations to require hot water systems to even have a timer.
“I installed a heat pump hot water system last year and it took me a while to find that I did have a timer because it was hidden under a screwed panel,” Denis-Ryan says. “I think they really didn’t want me to mess up with the default timings.”
Even though Australian consumers are used to seeing Energy Star ratings on fridges, washing machines, air conditioners and other electric appliances, we have no minimum energy performance standards for some of the most important appliances we use in our homes – space heaters, water heaters, and cooktops.
IEEFA argue that introducing minimum energy performance standards for these appliances is the single most important intervention government can introduce to reduce the stock of gas appliances and resistive electric appliances in our homes that lock in unnecessary energy costs.
Minimum energy performance standards would require new household appliances to be both efficient and electric.
IEEFA found that the cost of delaying Improved energy standards amounts to $3.4 billion per year and are costs borne by Australian energy consumers.
Mandatory minimum energy efficiency standards that have to be disclosed at the time of sale or lease will help address the split incentives of landlords and renters, where landlords lack motivation to improve the energy efficiency of investment properties because tenants pay the energy bills.
Australia has long grappled with setting minimum energy efficiency standards for rental properties. Early policy proposals largely failed because of concerns about cost impacts for landlords and rental supply.
Federal and State Energy Ministers have committed to exploring nationwide minimum standards as part of the push for net-zero emissions by 2050, but achieving national uniformity remains a significant hurdle.
The ACT government is leading the way in setting high energy efficiency standards for rentals. Since last year rental properties in the ACT must meet minimum insulation standards or face penalties.
In 2021 Victoria became the first state to mandate minimum energy standards for rentals, however this only requires landlords to provide fixed heating in living rooms.
Denis-Ryan argues that a bias exists in Australia’s energy planning organizations, processes and regulations. Most prioritise plugging what they see as a ‘gas supply gap,’ and building more poles and wires to meet our future energy needs.
But IEEFA research shows that electrification and energy efficiency could more than eradicate the gas supply gap.
“New gas supplies are not needed in the long term if we prioritise more demand side measures to reduce domestic gas consumption, and less poles and wires will be needed if we electrify efficiently.”
Furthermore, increasing the gas supply will come at a high cost that will have to be recovered through increased energy bills, and undermine the governments’ emissions reduction efforts.
“Distributed [or consumer] energy resources can often deliver the same service at much lower cost,” Denis-Ryan argues. “If supply and demand don’t match up, we should be looking at opportunities on [both] the demand side and the supply side to fix that imbalance.”
“We really need to interrogate a lot of those cultural and foundational blockers [to demand side measures] and change that.”
IEEFA has shown how tradies can directly impact the pace at which households and businesses can adopt electrification solutions, such as energy-efficient appliances, solar panels, and electric vehicle chargers.
Tradies are important in guiding households in their choices of appliances, however many are not aware of the financial benefits of electrification.
IEEFA highlights the need for an expanded, well-trained workforce to meet the growing demand for energy efficiency retrofits and electrification installations.
You can hear the full interview with Amandine Denis-Ryan on the SwitchedOn podcast.
Anne Delaney is the host of the SwitchedOn podcast and our Electrification Editor, She has had a successful career in journalism (the ABC and SBS), as a documentary film maker, and as an artist and sculptor.
This post was published on December 17, 2024 12:54 pm
IEEFA's Amandine Denis-Ryan explains why new gas supplies are not needed in the long term,…
Three simple, effective ways to stop your solar electricity going to waste.
Clean Energy Regulator issues fresh reminder to follow the rules governing the rooftop solar industry…
China giant unveils new inverter series in Australia and New Zealand, high-voltage hybrid inverter for…
A project in Melbourne that provided free energy audits and energy upgrades for private rental…
New study finds new-build homes more than twice as energy efficient as homes built in…