There is no silver bullet to the energy crisis

Enter Australia’s giant gas producers. Will they be our reluctant saviors?

In a sense, these companies were incentivized to solve the supply crisis created by the coal power deficits. And industry experts say there is enough gas to achieve this result. Australia is a major gas producer but exports most of it overseas.

Proponents of forcing large producers to siphon off enough gas for domestic use disagree with producers, who can sell gas on the international spot market at exorbitant prices.

Big gas companies say breaking contracts with international customers would give Australia a bad name – a sovereign risk. It feels a bit like they’re speaking their own book and the biggest risk would be for their high profits, made possible in large part by the scarcity resulting from the Russian war in Ukraine.

That said, the solution of simply sending gas to southern states is too simplistic. Pipeline capacity must be sufficient to cope with shortages, and industry experts say these pipes are already operating at full capacity.

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Another stakeholder group in this energy debacle are large commercial users of energy – companies who say the exorbitant prices they are currently paying are driving them to the wall.

Most cautious large-scale industrial energy users have already entered into longer-term supply contracts – and will only have a price problem when those contracts are over. But there is a group of companies that have not met their energy needs for the past two years and have taken advantage of energy costs by acquiring what they needed in the previously cheaper spot markets.

This group is now shouting the loudest.

Understanding why energy costs are soaring is complex, but finding a solution is even more so.

But what the crisis teaches us is that an unrelenting and uncoordinated transition to renewable energy is dangerous.

Instead, the switch to green energy should have been accompanied by the development of appropriate infrastructure and appropriate pricing signals.

The transport of energy from where it is produced to where it is used takes place through a network that was developed for a nation using coal-fired power plants as its main source of energy.

The transmission grid is centered around power plants – not the more fragmented locations that produce renewable energy. The current grid is not suitable for distributing energy – especially around a national market.

Addressing this problem is what Australian Energy Market Commission Chairman Anna Collyer is referring to when she talks about a $20 billion investment in the grid. It’s an expensive capital project that no government really wants to budget for, and it’s not a short-term solution that will allow any political party to solve the cost of retail electricity bills today.

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In the meantime, the Albanian government does not want to plead for any solution that would seem to go back on its references. Financial support to fix the problems of aging coal-fired generators would be a tough sell.

But the reality is that renewable energy supply is less reliable and needs to be supplemented with more reliable firming (distributable) generation – pumped hydro, battery storage and some gas.

Origin boss Frank Calabria says these firming generation assets have not received the necessary investment because there is no payment for electricity that is not used. He says a mechanism must be established by which these assets can make a return even when they are not generating energy.

The momentum towards decarbonization will not change. The crisis might be just what is needed to focus attention on what is needed to manage the demise of coal as the country’s main source of energy.

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