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Declining Renewable Costs May Squeeze Out South Australian Gas-Fired Power Generation by 2025

Declining Renewables and energy storage costs will most likely squeeze out gas-fired generation in South Australia by middle of next decade, according to a joint research conducted by Wood Mackenzie and GTM Research.

South Australia retired its last coal plant in 2016 and is projected to have installed renewable energy capacity exceed its peak demand by 2020, Wood Mackenzie said July 26. By 2025, wind, solar and Battery costs will fall by 15%, 25% and 50% respectively. By then, renewables and batteries could offer a lower cost alternative to combined-cycle gas turbine plants, which are commonly used to manage base load power generation in South Australia.

Wood Mackenzie's Asia-Pacific power and renewables principal analyst, Bikal Pokharel said, "One determining factor is the rate with which battery charging costs declines. By 2025, we expect battery charging cost to decrease as off-peak prices will gradually be set by excess wind generation. Battery storage then becomes a potential solution for managing peak loads.”

Meanwhile by 2035, renewables and batteries will provide a commercial solution for both base loads and peak loads. As a consequence, gas will increasingly be used just for emergency back-up.

According to Pokharel, by 2025, battery storage would be cheaper than open-cycle gas turbine in managing peak loads even at gas price of A$7/mn btu. “OCGTs would then be relegated as emergency back-ups."

Wood Mackenzie estimates that 400MW/ 1,600 MWh of battery storage will be sufficient to handle the highest peaking residual demand in 2025. This storage asset will be unlike the 100MW/ 129 MWh Tesla Hornsdale facility which is designed to meet energy security needs.

Renewables are expected to be double the capacity today by 2025, if all committed and planned renewables projects progress. This would mean that 67% of South Australia's power capacity would be renewables. Gas demand in the power sector will then decline by 70%. However, wind and solar energy are well-known for their intermittent nature. A robust power system needs to consider back-up generation and a supporting ancillary system, as South Australia experienced through a series of power failures in recent years.

For now, gas will remain important in ensuring uninterrupted power supply. "For gas to integrate renewables' intermittency, there needs to be more flexible gas contracts, on an hourly, monthly and annual basis. 'Capacity payments1 ' or the introduction of 'must-run units2 ' will be needed to ensure sustainability of gas-fired power plants. If gas contracts can't meet the flexibility required for this, South Australia might need to look at alternative fuels, such as diesel, for back-up power generation," says Pokharel.

"It is also worth noting that renewables built to date have been uneconomic without subsidies, and cost reduction trend will have to continue before they can compete," says Pokharel. "If current cost trends continue, 2025 could very well see renewables and batteries overtake rival generating alternatives in dominating South Australia's power system, and the region could become a leading case study on managing a power system in transition for other mature markets to follow," concludes Pokharel.

Shardul Sharma

This post first appeared on Natural Gas Asia - Asia's Unconventional Gas And O, please read the originial post: here

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Declining Renewable Costs May Squeeze Out South Australian Gas-Fired Power Generation by 2025


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