Failure of coal leaves us stuck with gas as a very expensive transition fuel

Gas-led recovery anyone?

High gas prices are threatening to inflict serious economic damage on manufacturing, even if the pleas of manufacturing lobby groups like the Australian Industry Group about “apocalyptic” gas prices are — forgive the pun — somewhat overheated. There could yet be a very real hit to growth in coming quarters as gas prices surge so high the Australian Energy Market Operator has been forced to step in and impose a $40 a gigajoule price cap up and down the east coast.

The cause lies not with the gas market or even, particularly, the global surge in gas prices — although that’s important — but the ongoing failure of our coal-fired power system on the east coast.

In May nearly 30% of coal-fired power capacity was offline due to increasingly unreliable, ageing power stations suffering major faults. Now the difficulty of accessing coal — also enjoying a a super price surge that is generating colossal windfall profits for coalminers — is further undermining coal-fired power. Origin Energy — which is enjoying big profits from its LNG exports — announced that it was struggling to source coal for its Eraring plant in NSW.

Eraring is fed directly by a coalmine operated by Centennial Coal, but production problems have required Origin to try to source coal elsewhere — in a seller’s market. Production problems have also occurred with coalmines hit by — irony alert — climate crisis-induced flooding earlier this year, further squeezing supplies.

Once touted by climate denialists as the only baseload worth considering, coal-fired power is now the Achilles heel of the east coast electricity network — expensive and increasingly unreliable.

That means we’ve had to turn to gas, especially with winter arriving with a blast in the east. It means we’ve had to default to the original Australian decarbonisation plan from the 2000s — gas as a “transition fuel” between coal and renewables.

That plan was never implemented because gas prices, driven by international markets, made it increasingly uncompetitive against renewable energy, the costs of which have plummeted over the past decade. Even as Scott Morrison was touting a “gas-led recovery” in 2020, his own energy agencies were predicting a declining role for gas in our electricity production because it was so expensive.

Now we’ve been forced to turn to gas despite its cost, because coal is so unreliable and we’ve wasted a decade underinvesting in, and often demonising, renewable energy and the infrastructure required to support it. Even the companies prospering from high gas prices, like Origin, are copping it from the other end — Origin has had to significantly downgrade its profits forecasts and ditch its market guidance for the moment while it works out what to do at Eraring.

There’ll be no escaping the impacts for businesses big and small alike, which will in turn feed through into lower economic growth over the course of the year. And no escape for households, either. Rug up.