Australians have been aware of the need to reduce greenhouse gas emissions for several decades. One element of the energy transition is the decarbonisation of natural gas distribution networks (GDNs). Natural gas (methane) is a greenhouse gas that, when combusted, produces carbon dioxide, another greenhouse gas. Most of the gas that flows through gas networks will be combusted (some is used as a feedstock for chemical processes) and thus contribute to climate change. Methane that leaks from gas pipelines contributes directly to climate change as well.
The more recent introduction of legislated net zero targets at both national and jurisdictional levels1 has only crystallised the timeframes for decarbonisation. Victoria2 and ACT3 have already introduced restrictions on gas network connections and incentives for gas users to switch to electric alternatives. In both cases, these policies are forecast to drive a significant reduction in reticulated gas use over the next decade. Four of the seven GDNs subject to full regulation are in these jurisdictions.
Source: AER,ERAWA, company websites
Given that jurisdictions without specific policies in place have net zero targets by 2050 at the latest, there are two realistic scenarios: either they will introduce relevant policies shortly, or they are confident that the economics of electric alternatives or customer sentiment will drive a switch away from gas by small customers. In other words, it is reasonable to suppose that even in jurisdictions that have not at this time introduced policies aimed at reducing demand on the gas networks, that demand will fall in any case. According to the Australian Energy Market Operator (AEMO), residential and commercial gas use is expected to decline 72% by 20434. CSIRO projects residential and commercial gas use to be largely non-existent by 2050 as households and businesses electrify and leave the gas network.5 6 While the Commonwealth Government’s Future Gas Strategy says “households and small businesses will have, for the most part, electrified by 2050”7. There will be some larger commercial and industrial users who use gas for processes that are very hard to electrify, but these tend to be connected closer to the transmission entry point, and so could still be supplied with a much smaller “stub” network. While some GDNs are promoting the use of renewable gases such as hydrogen or biomethane as long-term alternatives, factors such as cost and availability of feedstock make these gases unlikely substitutes for households and small businesses. Such renewable gases as do become available are best reserved for those hard-to-electrify industrial users.
Despite this prognosis, regulated GDNs continue to propose substantial capital expenditure (capex) programs, and new customer connections are subsidised by existing customers. GDNs’ only obvious concession to the risks of a declining business are to seek to load up costs on their current customer base by accelerating the rate at which their assets are depreciated. This is indicative of a set of rules for regulating gas networks that is no longer fit for purpose and Newgrange Consulting is pleased to have assisted EnergyConsumers Australia (ECA) in drawing up a set of proposals to change the rules to better reflect the changing outlook for gas networks. These cover four key areas:
The first of these proposals, to require upfront charges for new connections, is already under consideration. Together the proposals should work to reduce the future costs of declining GDNs, which will protect both the remaining customers on these networks who will face smaller increases in network charges, and also the owners of these assets who will face lower risk of being left with an asset for which they can’t recover the costs.
[1] AEMC, Targets statement for greenhouse gas emissions
[2] Victorian Government, Gas substitution Roadmap, 2022
[3] ACT Government, Canberra’s electrification pathway
[4] AEMO, 2024 Gas Statement of Opportunities (GSOO), Step Change Scenario accessed via gas forecasting data portal.
[5] Reedman, et. al., Multi-sector energy modelling 2022: Methodology and results: CSIRO Report No.EP2022-5553, Australia. P. 59
[6] Verikios, G. et. al, 2024, Modelling Sectoral Pathways to Net Zero Emissions, EP2024-4366, CSIRO,Australia.
[7] Australian Government Department of Industry, Science and Resources, Future Gas Strategy, 2024. p. 38
Australians have been aware of the need to reduce greenhouse gas emissions for several decades. One element of the energy transition is the decarbonisation of natural gas distribution networks (GDNs). Natural gas (methane) is a greenhouse gas that, when combusted, produces carbon dioxide, another greenhouse gas. Most of the gas that flows through gas networks will be combusted (some is used as a feedstock for chemical processes) and thus contribute to climate change. Methane that leaks from gas pipelines contributes directly to climate change as well.
The Australian Capital Territory’s (ACT’s) “100% renewables policy” is old news. Legislated in 2011, it largely took the form of the government striking a series of feed-in tariffs (FiTs) with renewable generators until it had procured enough capacity to deliver energy equivalent to top-up the ACT’s actual share of renewable generation to at least 100% of its overall electricity consumption. Some of the FiTs are with household and commercial scale rooftop solar, but most of the generation comes from large-scale projects.
In recent years Retailer Certificate Schemes (RCSs) have become a popular tool for Australian governments to deliver energy policy goals without having to directly fund them. The first of these was the Renewable Energy Target (RET) established in 2001. Towards the end of the 2000s several jurisdictions introduced energy efficiency RCSs. More recently, some governments have consulted on the introduction of RCSs aimed at supporting renewable fuels such as green hydrogen and biogas.