Professor Owen determined that there is a need for additional investment in base load power generation in New South Wales from 2013-14. He further suggested that power generation in New South Wales should be fully privatised to provide the best outcomes.

As part of his inquiry, Professor Owen commissioned an expert report, Availability and Cost of Gas for NSW Baseload Generation, from Wood Mackenzie.

In general terms, the report found that the use of gas as a preferred base load power-generation fuel would have substantial benefits, although the inquiry stopped short of recommending a fuel source, preferring to leave open investment options for the private sector.

APIA Chief Executive, Cheryl Cartwright, has highlighted many times in the media, with politicians and at seminars and discussion groups, the benefits of using natural gas in a carbon constrained future economy. The Owen Report agrees with these comments, saying that natural gas-fired power generation uses between 20 and 40 per cent of the water used for coal-fired power generation. When comparing costs, power generation by natural gas is generally around half the cost of power generation by renewable energy sources, and the cost of power generation using clean coal (geo-sequestration) technology is more than double the cost of natural gas-fired power.

Combined cycle gas turbines (CCGTs) are capable of running efficiently at high capacity factors. They are cheaper to build than coal-fired generators, but currently have higher fuel costs, and it is this that reduces their attractiveness for baseload power. The report has also found that adequate domestic gas is likely to be available for electricity generation until at least 2020 and possibly well beyond.

As a number of pipeline projects are already progressed in their planning, there is adequate lead time for the projects to be completed by around 2013-14.

As Professor Owen has highlighted in his report, ‘additional investment in an adequate and reliable NSW gas transmission network will be required…’; therefore long-term investment in long-distance gas transmission pipelines should be encouraged by government policies.

“To provide the necessary transport for the increased demand for natural gas, the regulatory environment needs to ensure there is no restraint on investment in capacity.”

APIA has often commented that appropriate government economic policies and regulatory environment need to be in place in order to ensure future investment in this critical infrastructure. The infrastructure to transport natural gas is privately funded, but investors needed appropriate government economic policies in order to encourage expansion of such infrastructure.

Wood Mackenzie also examined the adequacy of gas resources and infrastructure to support base load generation in New South Wales.

Their conclusion was that while production from existing reserves will begin to decline from around 2012-2014, the development of additional potential from reserves is likely to see gas production rates in Eastern Australia that are adequate to support high gas demand to around 2020. Additional discoveries are considered likely to add to the gas supplies available.

They found, however, that it was probable that after 2020 additional gas would be required to support existing consumption and additional growth. Also, there is potential for coal seam gas (CSG) in a number of basins in New South Wales with much of the area already covered by exploration licenses. Success with CSG in Queensland is further stimulating interest in New South Wales’ resources. An important issue for CSG in New South Wales will be access to pipeline infrastructure with the opportunity for new pipelines from Queensland to follow routes which can serve CSG operations in New South Wales.

Wood Mackenzie examined existing pipeline capacities and has estimated the timing of new pipelines and augmentations. Wood Mackenzie’s development scenario includes the following estimated development dates:

- Ballera to Moomba Interconnect – 2009 (recently announced by AGL for commissioning in December 2008) - Queensland to Hunter Pipeline – 2013 - Wallumbilla to Bulla Park pipeline – 2014.

Wood Mackenzie estimates that there will be adequate gas transmission capacity to support gas baseload generation in New South Wales over and above existing committed generation.

The Owen Report and the Wood Mackenzie assessment clearly support the natural gas industry’s view that demand for natural gas will increase as a result of State and Federal Government policies introducing emission reduction targets.

APIA would like to see certainty in such policies, in order for the private sector to be able to make the appropriate long-term investment in critical transmission infrastructure.

All States and Territories have committed to long-term emission reduction targets. The Commonwealth Government has promised to establish a long-term emission reduction target in 2008.

Uncertainty over the key design elements of a national emissions trading scheme is delaying necessary investment in new generation, including low emission technologies development.

Combined Cycle Gas Turbines have less than half the carbon emissions of new coal-fired power stations, and will benefit relative to coal from an emissions trading scheme. With a high enough carbon price, combined cycle gas turbines could potentially provide lower cost baseload than coal-fired generation.

Renewable and low-emission target schemes, such as the NSW Renewable Energy Target will help to accelerate the use of technologies needed to meet long-term emission reduction goals, before and in the early years of an emissions trading scheme.

The inquiry supports the call by APIA for certainty and clearly identifies the need for private sector investment, but the private sector needs certainty before such commitment can be undertaken.