Australia’s carbon tax to herald shift to natural gas

• 12 years ago (2012-04-25)
• Junior Isles

Renewables 776

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Natural gas is likely to be Australia’s new fuel source of choice in the face of a move away from coal-fired plants, prompted by the country's looming carbon tax, according to ratings agency Standard & Poor’s (S&P).

Natural gas’ dominance in the short term is to be stunted though due to potentially higher gas prices and carbon price volatility, S&P has said.

Australia's carbon tax plans, due to be implemented July 1, include a fixed carbon price for three years before permits can be traded in international markets, the ratings agency noted.

"Fuelling the uncertainty is what we consider to be a short window for new gas base-load investments," analyst Richard Creed noted in S&P’s research.

"Construction of new plants spans over extensive periods, while investors face long payback periods. Furthermore, the economic lives of new plants may be reduced."

S&P also noted that new gas plants might see shortened economic lives, even if investment decisions were made today, since the Australian government has set the aim of an 80 per cent emissions reduction by 2050.

"Owners of stand-alone base-load coal plants, however, are unlikely to invest in new generation, in our opinion," Creed said,. though, government support could potentially ignite new investments, particularly renewables, he added.

As much as 83 per cent Australia’s total generation came from coal in the fiscal year 2009-10, with just 10 per cent from natural gas, S&P estimated, quoting carbon analytics firm RepuTex Carbon Analytics.

While much of the existing coal-fired fleet is likely to continue to be necessary for system security and reliability for decades to come, its profitability is not assured and the development of renewables as a major source of generation could further erode the business case for new gas base-load power, S&P analysts concluded.