Demand for electricity is low, government policy is pushing renewables into an already oversupplied market and low wholesale prices don’t actually reflect the true cost of supply (see Chart 2).
Throw in high gas prices and gas-fired generation quickly slides down the merit order, largely confined to playing a balancing role in the market. The Australian Energy Market Operator’s (AEMO) latest modelling for the east coast market suggests gas demand for power generation could fall by 16.8 per cent per annum over the 2014–19 period.3
Residential consumption could take a hit as well. Rising gas prices will continue to put pressure on residential gas consumption, with AEMO forecasting limited growth of around 1.1 per cent per annum to 2019.4
For those consumers with different heating and cooling options, the decision to persist with gas is largely a flick of the switch depending on price relativities. While this will have a more immediate impact on residential usage, the biggest change in consumption patterns is likely to come further down the track. As the efficiency of electric appliances continues to improve, a gradual transition away from gas appliances is not out of the question.
How these dynamics play out on the east coast remains to be seen. But let’s be clear, market intervention to force domestic outcomes is not the answer. The key to balancing export and domestic growth on the east coast is resource development.