Banning gas connections to new homes as has been done first in Victoria is another net zero hit to mainstream Australians, warns IPA Senior Fellow Kevin You.
Prior to August 2022, the Victorian Planning Provisions mandated that new homes built in Victoria should be connected to the State’s gas network. The mandate was in recognition of Victoria’s abundance of natural gas along the Bass Strait as well as the need to increase household gas reticulation. The aim was to take advantage of the State’s rich gas basins to provide Victorian families with lower power bills.
In July 2022, however, the then Andrews government decided to scrap this mandate under a plan to phase out the use of fossil fuels in Victoria altogether. Energy Minister Lily D’Ambrosio, as quoted in the Herald Sun in July 2022, said natural gas—which is used by about three-quarters of Victorian households—was “no longer the cheap fuel it once was”. She further asserted that scrapping the gas connection mandate was all about giving Victorians a choice between full electrification and dual-fuel homes.
NEVER A CHOICE
Twelve months on, in July 2023, the government finally came clean. Full electrification was never about choice. Gas connections will be banned in new homes and government buildings throughout the State, starting January 2024. The switch away from gas towards a renewable-dependent electricity grid is not and has never been an option. It is compulsory. And a compulsory choice is no choice at all.
Over the last year-and-a-half, the push towards full electrification and the ideologically motivated demonisation of gas has only intensified. This is deeply concerning. In a statement to the Australian Financial Review, the Energy Security Board former head Kerry Schott said:
It’s become so non-politically correct to talk about gas … I’m perplexed how you can run a system [only] on renewables and batteries when you could have weeks of rain and can’t recharge your batteries, and wind droughts.
Minister D’Ambrosio doubled down, citing her faith in green hydrogen technology, pumped hydro, and the return of the State Electricity Commission to mitigate against risks associated with supply fluctuations and excess demand: the same SEC that has lost one of its key advisers and gas proponent, Dr Alan Finkel, and—at the time of writing—failed to attract sufficient capital to even start its first project, let alone deliver the promised 4.5 gigawatts of renewable capacity to the grid.
To suggest the SEC can secure adequate replacement for the State’s three remaining coal-fired power stations (Yallourn, Loy Yang A and Loy Yang B) is fanciful. To suggest that it can, additionally, play a key role in expanding the grid to support mass electrification is just wishful thinking.
Even a first step towards electrification carries a massive price tag.
But even the Grattan Institute was at first sceptical of the anti-gas sentiment. Its energy program director Tony Wood argued that Victoria was being unrealistic in its vision to ditch gas on the way to its 2045 target. According to Wood:
Emissions reduction can be done without excluding gas from the equation. We are kidding ourselves if we think we [can] do this without gas.
That was in February 2023. But then in June, Grattan released a report featuring Wood as its lead author, arguing:
Australia will not hit its 2050 net-zero emissions target unless it gets off natural gas … Victoria, the State that relies most on gas, will need to take 200 homes off gas every day until 2045 to achieve net zero. Governments need to start now.
It was quite a turnaround.
First on the chopping block are stove tops, gas heaters, and hot water tanks. This is even though, by Grattan’s own analysis, carbon emissions from the use of residential gas appliances make up only 1.86 per cent of total national emissions and 8.58 per cent of all emissions attributable to gas in Australia. In other words: no more than a minute fraction.
ELECTRIFICATION WILL COST BILLIONS
The cost, however, will be astronomical. In April 2023, ACT-based Independent Senator David Pocock launched Suburb Zero: a pilot project offering electrification incentives to up to 1,000 homes in one Canberra suburb. Around 73 per cent of homes in the ACT are connected to gas. The aim of Senator Pocock’s project will be to test the practical challenges “associated with [the] rapid decarbonisation of existing housing and apartments”. The Parliamentary Budget Office (PBO) estimates the cost to taxpayers of this pilot program to total $12.7 million between the financial years ending 2023 and 2026.
Applying the PBO’s per household cost of residential electrification subsidies to the 5.16 million Australian homes which still benefit from gas connections would allow us to estimate the expected price tag for an expansion of Senator Pocock’s program. The cost will add up to roughly $66 billion. Estimates provided to The Australian newspaper by the Australian Pipelines and Gas Association, and the Institute of Public Affairs’ independent costing, arrived at roughly the same figure.
Independent analysis by the IPA confirmed the PBO’s costing per eligible household. However, the consequences of expanding this program nationwide will be wider reaching than just the 5.16 million homes connected to gas. This is because the program also seeks to incentivise the uptake of electric vehicles, and the installation of rooftop solar panels and solar batteries—not just the replacement of gas appliances.
The expansion of the Suburb Zero electrification program to those homes not connected to gas, through EV and solar subsidies, will cost taxpayers a further $33 billion. The total cost of Senator Pocock’s household electrification program could come close to $100 billion over four years. This is more than the combined annual Federal Government spend on defence and education.
But this figure represents only the cost of the program’s package of electrification subsidies to taxpayers and does not assume a 100 per cent take-up of the range of subsidies on offer, meaning that even such a hefty price tag does not guarantee full residential (let alone commercial and nationwide) electrification. Moreover, a considerable share of the cost of electrification will still have to be borne by households because the subsidies do not cover the full cost of the electrification process. The IPA estimates the full upfront cost of residential electrification adds up to $81,054 per household.
The subsidies on offer will only cover half of the cost of upgrading household appliances and installing the necessary solar facilities to support the higher electricity needs of each electrified home. Subsidies in support of electric vehicle upgrades will only cover a fraction of the associated costs. This is why only some of the eligible households will participate—and even then, most participants will not take up all the subsidies and loans on offer. Even an incomplete initial step towards electrification, therefore, carries a massive price tag. A full economy-wide electrification will risk breaking Australia’s already fragile economy and jeopardise our struggling electricity grid.
UNNECESSARY EXTRA PRESSURE
In 2022 and 2023, Australia extracted roughly 163 billion cubic metres of natural gas per annum, which will produce the equivalent to approximately 1,700 TWh (one Terawatt-Hour equals 1,000,000,000,000-watt hours) of electricity: enough to power Australian households and businesses for more than eight years. But this is not all that Australia can produce. Victoria, for example, currently has in place, a constitutional ban on fracking, without which considerably more gas could be produced from its rich Gippsland and Otway-Bass basins.
The IPA has previously highlighted the folly of this ban. In November 2022, IPA Research Fellow Saxon Davidson wrote:
According to Geoscience Australia, in the Gippsland Basin alone, there are 19.2 trillion cubic feet of unconventional natural gas. That is equivalent to 879 million petajoules, which could power every home in Australia for the next 94 years!
There are, in addition, accessible conventional gas reserves in Victoria not requiring fracking which potential investors have given up on due to the hostile regulatory regime and government attitude. Given Australia’s capacity to produce natural gas—and the important role it plays in firming electricity supply to a grid that is increasingly dependent on intermittent wind and solar—the ban on residential gas use makes no logical sense.
The electrification roadmap of the Australian Energy Market Operator (AEMO), according to its baseline ‘step change’ forecast as of the time of writing, suggests electrification would increase demand in the National Electricity Market by 121 TWh per annum by 2050. This equals more than half the NEM’s current annual output. Meanwhile, firmed grid generation output will decrease by close to 60 per cent from about 142 TWh per annum to 58 TWh per annum. This includes output from hydrocarbons, and conventional hydroelectric facilities, as well as utility-scale storage mechanisms like pumped hydro.
Increased electrification and the replacement of baseload capacity with variable renewable capacity will have the effect of making households served by the NEM more and more reliant on intermittent sources of power and distributed storage facilities, such as household wall-mounted batteries, as well as demand side participation programs; namely, arrangements by which electricity users reduce their consumption at times of high wholesale prices or emerging reliability issues.
IT’S FOR YOUR OWN GOOD
Two justifications are being touted for taking gas appliances away from Australian families. The first is that full electrification reduces greenhouse gas emissions. The second is that ripping out gas appliances will end up being cheaper for consumers.
Modelling by the Grattan Institute suggests full electrification in Melbourne—the city with the highest rate of gas connections in Australia—will in fact increase annual greenhouse gas emissions. Annual emissions from heating, cooking, and hot water are set to rise from 2.83 tonnes to 3.43 tonnes per household under a full electrification scenario.
Burning fuel to produce electricity produces more emissions than burning gas at home.
The reason that fully electrified homes and appliances produce more emissions is because burning the fuel mix which is used to produce electricity results in the production of more emissions than burning gas at home, especially in Victoria.
Energy and carbon market economist Tristan Edis wrote in The Australian Financial Review:
For each kilowatt-hour of gas consumed, the Australian government says 0.19 kilograms of CO2 is released, whereas for electricity in Victoria it was 0.85 kilograms … Averaged across the east coast electricity grid … it is about 0.77 kilograms per kilowatt hour.
Electrification, therefore, does not reduce emissions in the immediate term. The argument that electrifying homes will end up being cheaper for consumers flies in the face of the notion that the transition should be managed and enforced by the iron fist of the state. If consumers truly benefit from electrification, then any government mandate must necessarily be redundant.
Forced electrification will further stress Australia’s electricity grids which are already struggling from:
- The rapid decommissioning of coal-fired power generation facilities.
- The amplified supply fluctuation from an increasing reliance on wind and solar.
- Under-investment in reliable coal-fired power stations.
The cost of the electricity network upgrades needed to accommodate household electrification, just in Victoria alone, is estimated to add up to $11.34 billion.
Neither Senator Pocock nor the Victorian Government nor the activist proponents of rapid electrification appear to be bothered by how much electrification and the switch from gas will add to government debt. Neither does NSW Liberal Senator Andrew Bragg, who, in June 2023, proposed that taxpayers should help foot the bill for a rapid and widespread household electrification program. The senator argued:
The benefits of electrification are clear, but we need to be ready to harness its full potential, particularly if we are to combat energy price inflation. Household electrification is becoming an increasingly popular option for Australians to power their homes.
The fact of the matter is that the benefits of electrification are far from clear. And if Australian families are indeed already embracing electrification, then the government should not have any role to play in the process. There is no reason why taxpayers should be forced to pay for the switch away from gas.
Encouragingly, the Minns government in NSW, the State with the second highest number of homes connected to gas, has committed to not follow Victoria’s lead to ban household gas connections. As reported in the Riverine Herald, Premier Chris Minns said going down the same path as Victoria would “further complicate” the challenges NSW’s electricity market already has to face.
MORE GAS IS NEEDED MORE THAN EVER
Household electrification, along with gas price caps and the commitment to net zero emissions by 2050, will disincentivise investment in gas exploration and production at a time when gas is needed more than ever.As of February 2023, Australia hosts 96 gas-powered generation units with a total capacity of 14.61GW. Up to quadruple this amount will be needed by 2035 to firm up variable renewable sources of energy under the Net Zero Australia study plan. There is no logically conceivable future without gas in the energy mix. Yet, other net zero proponents such as the Climate Council and now, evidently, the Grattan Institute, are waging war against gas.
AEMO has taken yet a different approach. Its plan, detailed within its Integrated System Plan document, is to keep gas capacity roughly at the current level—neither increasing nor decreasing gas generation capacity in a significant way.
There is no logically conceivable future without gas in the energy mix.
While climate activists and renewable supporters bicker among themselves about the role of gas in Australia’s net zero future, or lack thereof, the closures of coal-fired power stations are progressing at a rapid rate. The last decommissioning of a coal-fired power station, Liddell in the Hunter Valley, resulted in the average quarterly wholesale power price in NSW shooting up by 38 per cent—or by $40.53 per megawatt-hour, from $104.16/MWh to $147.69/MWh. To a considerable degree, this was exacerbated by the delay in the construction of Snowy Hydro’s Kurri Kurri gas plant: a Federal Government-owned 750 MW gas-powered generator, which was meant to address some of the firmed capacity gap brought on by Liddell’s decommissioning. The delay was, at least in part, attributable to the insistence of the Federal Minister for Energy, Chris Bowen, that the facility should run on green hydrogen—in light of activists’ aversion to natural gas. Progress on the project could only be made once the green hydrogen plan was shelved.
Unsurprisingly, the Kurri Kurri gas project could not be completed in time for Liddell’s decommissioning—which partially explained the sharp price increases in the wholesale market in the second quarter of 2023.
An energy system cannot run on the foundation of ideology. Nor can it run on a new-age green spiritual movement, especially one with an illogical aversion to natural gas. The energy security and way of life of Australian families must not be jeopardised to satisfy the climate alarmist narrative of radical green activists who have always enjoyed the privilege of being able to voluntarily unplug from their States’ gas and electricity systems, as individuals, if they so choose.
The problem is they wish to impose the burden of net zero on everyone else. Concerningly, at least in Victoria, they now have the iron fist of the state at their disposal. Today, our gas stoves, heaters and hot water tanks are in their line of sight. If we are to take these activists at their word, then the next thing they will go after are our cars, Australia’s farmland, our children’s education—and our way of life.