Gas power generation feels the squeeze from renewable technologies

Our research shows that gas power generation (GPG) revenues are being displaced by wind and solar.

• In Q120, solar revenue was ~4% of the total spot earnings (excluding coal revenues). This was about the same share for solar from Q119.
• Wind revenue made up ~21% of total non-coal spot earnings in the state in Q120. This was up 5pp from Q119; with wind seeing ~600MW increase in generation capacity in that time.
• GPG’s share of these spot earnings was down by ~5pp between Q119 and Q120.

The below graph highlights the merchant value (unadjusted for losses) captured by these technologies in the state of Victoria.

Image: Cornwall Insight

Lumi Adisa, Lead Consultant – Market Analysis and Business Development at Cornwall Insight Australia, said: “These trends emphasise the competition GPG faces from wind today and is likely to face in future, especially during evening peaks when prices tend to be higher given solar is then out of the generation stack. It is evident there is a clear intraday value shift mainly driven by increased solar; both rooftop (reduced grid demand during the day) and grid-scale (coincident increased supply during the day). This creates an ideal market for energy storage.

“With impending retirements and increased rooftop and grid solar output, there will be an increasing need to shift large amounts of excess energy during the day (with reduced operational demand) to meet evening peaks. So far, we have not seen any storage technology with large exposure to the merchant market; how long this remains, the case is left to be seen. Overall, the merchant outlook for coal replacement technologies continues to look healthy. However, exactly what role GPGs will play during the transition remains unclear as they continue to feel the squeeze from wind and potentially storage for high-value pockets of the day.”