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Policy Sequencing: On the Electrification of Gas Loads in Australia’s National Electricity Market

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  • Simshauser, P.
  • Gilmore, J.

Abstract

Decarbonising our power systems requires coal plant to exit and be replaced by intermittent renewables, along with a diversified fleet of flexible firming plant (viz. batteries, pumped hydro, gas turbines). It also requires electrification of the gas market. In Australia’s National Electricity Market, certain jurisdictions have sought to pursue power system decarbonisation and electrification of gas loads simultaneously. Using 40 years of weather re-analysis data in parallel electricity and gas market models, we identify the generation plant investment task required to meet the primal energy policy task of minimising cost, subject to reliability and CO2 emissions constraints. The outstanding renewable investment task is very material, and accelerating electrification may have the unintended effect of entrenching coal plant for longer. Further, a large fleet of gas turbines is required to deal with intermittency during winter months when renewables experience annual output nadirs. Yet a larger gas turbine fleet produces an acute peak (gas) demand problem during critical event winter days. Electrification of gas customers reduces annual gas demand, but ironically, gas turbine output on those critical event days means there is little change in daily maximum gas demand. This is quite a paradox – electrification policy signals the structural decline of gas networks, yet gas turbines and supporting gas storage and pipeline infrastructure become critical to maintain security of supply. Careful investment planning and policy sequencing is therefore required.

Suggested Citation

  • Simshauser, P. & Gilmore, J., 2025. "Policy Sequencing: On the Electrification of Gas Loads in Australia’s National Electricity Market," Cambridge Working Papers in Economics 2528, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:2528
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    More about this item

    Keywords

    Electrification; Renewables; Natural Gas; Energy-Only Markets; Dispatchable Plant Capacity;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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