But brown coal and wind generation would be the big winners.
Natural gas-fired generation in the National Electricity Market (NEM) will fall more than 60% should carbon pricing be removed from the market, according to RepuTex. The research forecasts coal output expanding to make up the difference, while wind generation continues to grow.
RepuTex’s latest Australian Energy Outlook shows natural gas generation falling from a 13% share of the total NEM market output in FY13 down to just 3% by FY2020 if the government's Carbon Price Mechanism (CPM) was removed and Australian gas prices continued to rise.
RepuTex associate director of research Bret Harper said: “Where gas was previously seen as the likely transition fuel in the move away from coal-fired generation, the opening up of the east coast of Australia to LNG export projects is expected to push up domestic gas prices, to reflect the higher price of gas in Asia.”
“Our modelling suggests that this price impact on gas, combined with the removal of any support from a carbon price, will help preserve coal's superior cost advantage. Should the carbon price remain in place, however, we forecast that gas output would not fall as far, even when east coast gas prices increase,” Harper added.
RepuTex’s Q3 Energy Outlook, which forecasts generation mix across the NEM based on a series of carbon, gas and electricity price outlooks, modelled two scenarios – one where the CPM continues, with the carbon price driven by likely market reform in the European ETS, and a second that removes the Australian CPM entirely.
Brown and black coal firing up the NEM
RepuTex analysis shows that brown coal would be the if carbon pricing was removed. Without the carbon price, the total share of brown coal-fired electricity generation is expected to remain about 24%, rather than retreating when its carbon price compensation expires in FY18.
As a result, brown coal power plants based in Victoria’s Latrobe Valley are largely protected from the recent declines in electricity demand. The lower demand has instead forced coal generators with higher fuel costs to suspend nearly 3,000MW of capacity.
Regardless of whether brown coal’s carbon pricing compensation expires or is removed earlier by political change, black coal will continue to play a key role in the NEM, with total output to account for just over half of all NEM generation by 2020.
Assuming the FedEral Government’s Renewable Energy Target remains in play, wind generation is expected to continue to grow from 6% of electricity generation in FY13 to 18% by 2020, as the Large Generation Certificate (LGC) price continues to drive investment in wind assets, even if the Australian CPM is repealed.
CO2 to grow 4% with no carbon price
Despite the continued growth of renewable generation, however, RepuTex modelling indicates that carbon emissions will be much higher if the carbon price is repealed.
“Even after achieving 20% renewables, the unconstrained presence of coal and the large drop in gas generation will see power sector emissions grow by approximately 4% from today’s levels should the carbon price be repealed. On the other hand, if the CPM stays in place we anticipate an emissions reduction of around the same amount, 4%, through to 2020, due to reduced brown coal output,” Harper concluded.
