Gas intervention, bottlenecks could slow energy change

A leading ratings agency has warned against gas price intervention if Australia’s transition to a cleaner electricity grid is to succeed.

Moody’s Investors Service says their central scenario is still for an increasing pace of transition in Australia’s emissions-intensive energy market, but this change faces difficulties.

Government intervention on gas prices should alleviate short-term price pressure but could stymie gas producers’ willingness for further exploration and development, increasing the likelihood of future gas shortages, Moody’s said in a report released on Tuesday.

That would would impact on energy system security and reliability, given the importance of gas as a transition fuel, the report said.

Renewable energy generation backed by storage from big batteries and pumped hydro will replace retiring coal-fired generation plants as Australia’s coal generators shift their closure dates earlier.

This is consistent with Australia’s emission targets, and a transition under way for several years. More than one-third of energy requirements is provided by renewable sources including rooftop solar.

The Australian market has the capacity to install the required renewable generation fleet over the next few years, but more careful planning will be needed towards the end of the current decade, Moody’s warned.

“Current weakness in the construction sector could heighten the risk of delays to network expansions, which in turn will result in delayed commissioning of renewable energy projects,” the report said.

Moody’s said the potential introduction of emissions objectives into national energy laws and the reform of the industrial emissions safeguard mechanism, once implemented, will likely drive investment in projects that offer carbon-offsetting credits.

Despite a positive policy environment and government funding support, the pace of change could be impeded by several factors.

The report said these include higher labour and raw material costs, an increase in commodity prices including battery minerals, and higher interest rates.

As well as meeting investment hurdles, projects will compete for contractor and project management capacity.

Moody’s said obtaining environmental and planning approvals for projects that are becoming increasingly sensitive on environmental, social and governance grounds was another challenge.

When built, successful connection to the transmission network also remains a key bottleneck.

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