Tasmania’s Energy Connection
INTRODUCTION
When we look back over our lives, we can often recognise those times when a decision to go left or right, to progress or maintain the status quo, made all the difference.
Societies, communities, and industries all face the same inflection points.
The trick is recognising these key points in time before they pass us by.
And when we do recognise them, together our society must face these critical challenges with critical choices. How we respond will make all the difference.
In the energy industry, we’re at that crossroad now. Energy is well and truly back on the front pages.
The cost of living and the cost of doing business is number one on the list of issues covered by the media AND dominating political debate. And this is with good reason.
Over the past month Australia has seen two retailers, one in electricity, and one in gas, fail. And their failure has had big consequences for their customers.
“Who knew that turning the lights on was something we had to worry about”, writes one opinion former.
Our energy mix and the role natural gas will play in that mix is a national challenge, and one that has never been so important. It is a challenge that Tasmania must also address in its own unique way.
And time is of the essence. The East Coast of Australia requires action, and urgency to put in place a better plan for our energy future.
A planned and coordinated approach with industry will ensure that our State can capture the advantages of its significant hydro position as the battery of the nation. It will ensure that the benefits of the Marinus link are properly realised.
It will ensure that it maximises the benefit to the State from the growing opportunities that hydrogen presents, and importantly, it will define and secure the role natural gas will continue to play to support customers’ needs.
The market circumstances we find ourselves in demonstrate more and more the role natural gas will play for many years to come, and why gas MUST play a role in assisting the transition to a low carbon economy, and importantly support the significant exit of coal from the NEM.
To help make clear the energy decisions facing Tasmania I want to start today by looking at some of the immediate challenges playing out both locally and globally in energy and gas markets.
Then I will focus on why gas is important to Tasmania.
I’ll discuss the opportunity that exists for Tasmania to capitalise on its energy foundations.
And finally, I’ll outline what I believe are the important steps that we can take to deliver a stronger energy future for Tasmania.
CONTEXT
So, first to the challenges that are playing out in gas markets.
Daniel Yergin the Pulitzer winning author of The Prize wrote more than two decades ago, that: “We are living in a new age of energy supply anxiety.”
Two decades ago, but it could have been written this morning.
Across the east coast of Australia these past weeks have seen unprecedented gas prices, calls to subsidise households to switch to electric appliances, a declaration of a threat to the security of gas supply, a suspension of the National Electricity Market by AEMO, and the collapse of retailers as I mentioned at the start.
Yes, today’s energy markets are without a doubt characterised by anxiety.
And while in Tasmania our homes, businesses and industry have been afforded a secure, and reliable supply of gas, we must be vigilant and ensure we work with the mainland States to ensure our energy future remains secure during a period of rapid change.
The change and uncertainty in energy markets that goes with it has been ignited by Russia’s invasion of Ukraine. This has driven demand for alternative sources of oil and gas right around the world, pushing up commodity prices and driving increased investment in both gas and renewables.
The change has also arisen due to the challenges of climate change. The drive to lower emissions is seeing countries and companies commit to plans to reach net-zero emissions over the coming decades. The outcome is a world wanting a lot more renewable energy. And fast!
The IEA estimates that by 2050 the share of renewables in total electricity generation globally increases from 29% in 2020 to over 60% in 2030 and to nearly 90% in 2050.
From 29% to 90% in 30 years.
This rapid shift to a renewable energy economy is also resulting in a massive increase in the demand for certain minerals.
In the same way that we see chip shortages leading to challenges with car availability or appliance availability, markets for lithium, nickel, cobalt, manganese and graphite are experiencing dramatic shifts due to their importance to battery performance, longevity and energy density.
We should be conscious that the pursuit of Net Zero does not mean no impact. It will create demand and at times shortages of different materials impacting the renewable energy supply chain in new ways.
A reliable secure renewable energy economy will drive its own challenges.
For example, batteries are only a great storage option when energy prices are low enough to recharge them. Over the last few weeks, we’ve seen record energy prices and Snowy Hydro for example pumping at the same time as discharging. Perhaps that’s not the most efficient way to deliver energy into the market.
What we can learn from the past month is that a balanced and efficient energy market needs all sources of energy, including gas, to manage the need for dispatchable generation when the wind isn’t blowing, or the sun isn’t shining.
This dispatchable generation is also needed when there is an energy shortfall, as with today’s scenario where 25% of the NEM's coal generation fleet is out for maintenance. I’ll come to this more later when I talk about the role for gas.
The ramifications of today’s energy security challenges impact all of us. In the end it is the customer that bears the brunt of record petrol prices, steep rises in wholesale electricity costs, jumps in the spot price for gas, and failed models of suppliers.
The hurt you are feeling in your bank account is capturing the attention of communities, industry and governments alike. Yes, this challenge is again driving policy decisions and will remain at the centre of politics for the next term.
Now many may see the solution as a simple one. Don’t we just need to phase out fossil fuels including gas? Isn’t this rapid change simply a sign of the market pushing the customer to seek out other cheaper and lower carbon alternatives?
WHY GAS IS IMPORTANT TO TASMANIA?
This question brings me to the topic of why Gas is important to Tasmania.
To start with I want to point out a milestone that we can’t let pass by. This year, 2022, marks 20 years since our island was connected to Longford in Victoria via the commissioning of the Tasmanian Gas Pipeline. Yes, it is now 20 years that Tasmanians have been able to take advantage of the many benefits of natural gas.
That may surprise many here today. But gas and the gas industry have a long history in Tasmania.
In Launceston where Tas Gas’ head office is located, the Gasworks’ 1930s built tower is almost iconic to locals, as is the words “COOK WITH GAS” stamped into the brickworks. Located in the CBD the site was the principal supplier of gas to the City of Launceston before the importation of LPG in the 1970s.
Like in Launceston, other towns around Tasmania embraced ‘town gas’ at the turn of the century. At the time gas lit factories, homes and streets and replaced oil lamps and candles so that working hours could be lengthened, while the convenience of gas lighting and cooking was delivered to homes.
Today natural gas is in more than 14,000 homes across Tasmania – providing energy for cooking, hot water and heating.
Today more than 1,000 businesses rely on gas being there for them day in and day out.
And today around 70 large industries critical to Tasmania’s economy would have to stop operating if gas were not there.
It is estimated that the 20 main users of the Tas Gas network contribute more than $970 million in gross state product to the Tasmanian economy each year, supporting over 4,000 jobs directly and nearly 9,000 jobs in total.
Gas is crucial to Tasmania’s energy security and to its economy
No other form of energy today can provide the quality of heat that many industrial processes require as reliably or as cost effectively or with as low carbon.
Yes, gas is still a very important part of our energy system here at home.
Globally natural gas is important too. It made up 16% of the demand for energy in 2020 and Tasmania is on par with that, with gas today making up 15% of our State’s energy supply.
WHAT IS THE OPPORTUNITY?
This leads me to my next topic, what will Tasmania’s energy economy look like in the future and what role will gas play in that economy?
Will our energy economy be impacted by the buffeting winds of more uncertainty? Or will we be a leader, having invested over the next decade to ensure our island’s energy system is more secure.
Can we in fact take a step further to contribute to a more secure energy future for Australia?
And by secure I am not simply referring to the delivery of consistent, stable energy. But yes, supply is integral.
I also mean security of price. Will our energy be at an affordable price for homes, and a price that allows industry and businesses to remain competitive in Tasmania?
I also mean security of climate. Will our entire energy system work together to deliver a net zero energy portfolio for Tasmanians?
To answer these questions and to plan for future energy security we have to think about Tasmania’s energy system as one that is intrinsically connected to the nation’s.
ELECTRICITY
Talking electricity first, we know that our State is blessed to have been able to rely on hydro for over 100 years. The power that is stored in the topography that generates our water resources is now being bolstered by the natural advantage Tasmania also has in wind resources.
Together these energy resources form what we call the Battery of the Nation.
But this ‘battery’ is of less value on its own. It can only be fully exploited through interconnection between Tasmania and Victoria. And this is why the Marinus Link is so important to increase the transmission capacity and transfer of energy between our States.
The opportunity in front of us is to continue to invest in our existing and future hydro power, to invest more in pumped hydro and to grow our wind resources to improve the volume, availability and efficiency of renewable energy provided by Tasmania for all Australians.
It’s a great opportunity isn’t it?
But remember that opportunity only exists because of a connection to the mainland. We need a market for our battery’s energy.
GAS
If we move to talking about gas, and again ‘connectedness’ is a critical factor. Not quite 20 years old in 2016, but more of a teenager, our Tasmanian Gas Pipeline delivered natural gas from the Bass Strait to support our power needs.
The ability to activate the natural gas-fired Tamar Valley Power Station in 2016 was considered to be the single biggest mitigant of the State’s energy crisis, allowing thousands of Tasmanians to continue to run their homes and businesses.
And while gas only makes up around 6% of the NEM’s output today, it has the capacity to provide up to 17% of the market’s needs, allowing it to play an important role in meeting peak demand or step in if there are operational challenges being experienced across the market. Just like it did in 2016, and just like it did a few weeks ago in South Australia.
Most modelling shows that in any energy future gas will continue to play a role, working with renewables to form a natural partnership in the pathway to net zero.
Globally the IEA’s modelling for Net Zero in 2050 shows gas only dropping by 1% in market share. From 16% to 15% when you include all forms of gas including renewables such as Hydrogen and Biogas, both of which Tas Gas is exploring today.
And this is a critical point. To achieve Net Zero depends on gas playing a role.
And just like we will need a range of energy types to help the world achieve a net zero outcome, a mix of gases will be required to support this in the most cost effective and fastest way possible.
There are also risks and challenges with any new technology. Hydrogen is for example currently expensive, and end-user appliances will need to be upgraded for high hydrogen blends.
Biogas can also directly be substituted for natural gas, however volumes may be limited by the availability of suitable feedstock.
And carbon capture and storage at scale also is yet to be truly economically competitive.
Spreading the risks across technologies rather than putting all of our eggs in the one basket is the smart approach for the world and for Tasmania.
Importantly, in Tasmania we have in place the appropriate infrastructure to support net zero carbon gases. In fact, the gas network in Tasmania is one of the most modern in the world and is 100% hydrogen ready.
On the mainland, gas is also predicted to play an important role in our future power make-up, but to achieve it we will need to ensure that the NEM can match when and where electricity is generated. This will require considerable investment in dispatchable generation as I referred to earlier, or what is called firming capacity, together with efficient network investment.
And we are not talking small numbers. By 2050 AEMO estimates that without the current 23GW of coal capacity, and with the increase in renewables, the NEM will require:
This is a significant investment in energy infrastructure.
THE PATH TO SECURITY
So, finally, and given what I have outlined we must ask ourselves the question, what is the path to energy security for Tasmania?
I believe there are three critical elements that must be addressed to answer this question:
First – we must define Tasmania’s future connectivity to Australia’s energy future:
Despite the increase in renewable energy, the mainland’s energy challenges without coal gets much harder.
And, make no mistake, without an energy connection not only is Tasmania’s energy security deprived but so too is the rest of Australia’s.
Our State with its natural advantage in renewable resources will play an important role in securing Australia’s energy future.
Second – we must agree the critical role that Gas will play:
In doing so we should look to the customer to determine their value proposition for gas. We need to understand both their usage needs and their journey to decarbonise.
In this way gas, be it natural, bio or hydrogen, will remain important to the nation and critical to Tasmania’s energy security potential.
And if this is the case then rather than supporting short-term solutions like increased taxation of gas producers to subsidise today’s prices, Tasmania needs to support Australia’s gas producers’ efforts to continue onshore and offshore field development.
And third – we need to develop a long-term plan:
Tasmania and the nation cannot be let down by the failure of successive Federal Government’s to put in place a long-term energy policy.
Australia’s energy system is ridden with frailties that have a particularly significant impact on customers.
And we must therefore act with intent and urgency to plan for our energy future.
Our industry and our governments need to take this opportunity to establish a new beginning, one where there is a pathway to a more secure energy future, one where we never have to ask whether we can turn the lights on, and one in which a partnership between gas and renewables delivers a better outcome for business, for workers, for our State, and for our nation.
That pathway must be defined now.
Thank you.