About nexa Advisory

Nexa Advisory is an advisory firm dedicated to accelerating the clean energy transition while ensuring secure, reliable, and affordable power for all consumers. The team consists of experienced specialists in energy markets, policy, regulation, and stakeholder engagement. They work with a variety of public and private clients, including renewable energy developers and climate impact philanthropists, to remove roadblocks to Australia’s transition.

Introduction

Australia is currently at a critical juncture in its clean energy transition. The nation is failing to build renewable generation, storage, and transmission infrastructure quickly enough to replace ageing coal-fired power stations. Delays in these rollouts threaten electricity reliability in the National Electricity Market (NEM) and risk missing emissions reduction targets. This report highlights that a continued slow pace will increase consumer electricity costs and result in an over-reliance on expensive gas-fired generation.

Summary of key findings

The report identifies six key findings from commissioned modelling. Firstly, major delays in infrastructure result in a greater reliance on additional gas. While 5.2 GW of renewable capacity was added in 2024, the Base Case requires 4.3-8 GW per year through to 2030. Delays could necessitate up to 2.8 GW of additional gas capacity. Secondly, reliance on gas is expensive, with annual consumption potentially increasing by 107 PJ by 2030. Supply chain constraints have pushed lead times for new gas turbines to over five years.

Thirdly, gas will retain a limited back-up role, but batteries are increasingly providing effective substitutes. If no new gas is built, Australia would require a vast build of 66 GW of solar, 75 GW of wind, and 57 GW of storage by 2050. Fourthly, targeted alternatives like fast-tracked intra-regional hosting capacity could avoid 1.8-2.8 GW of additional gas capacity. Fifthly, transmission delays are costly, potentially increasing wholesale electricity costs by $84.6 billion to $115.7 billion. Finally, extending coal-fired generation is incompatible with emissions targets, as coal is responsible for 77-84% of total electricity sector emissions to 2050.

Overview of the East coast gas market (ECGM)

Australia’s gas demand is dominated by Liquified Natural Gas (LNG) exports, which accounted for 1,439 PJ, or 74% of all demand, in 2024. The domestic market is undergoing a structural transformation driven by electrification and shifting consumer preferences. Total domestic gas usage on the East Coast was 511 PJ in 2024, spanning residential, commercial, industrial, and electricity generation sectors. Gas usage is already declining, with a year-on-year reduction of 4% for industrial and 2% for residential sectors since 2018.

Gas-powered generation in the NEM

Gas-powered generation (GPG) accounts for only 5-10% of total gas demand and is playing a diminishing role in the electricity mix. GPG primarily provides ‘firming’ for renewables and ‘peaking’ during short periods of high demand. Outside these periods, gas is typically uncompetitive with cheaper renewable generation. The NEM currently has approximately 10 GW of installed GPG capacity, mostly commissioned in the 1990s and 2000s, reaching their midlife phase.

The economics of gas use in the Australian electricity sector

Electricity prices are set by the marginal cost of meeting demand. In 2024, coal and hydro set prices for 33% and 35% of the year respectively, while gas set prices for 10% of intervals. However, as coal exits the system, gas is likely to increase its position as a price setter. This creates a direct link between gas prices and wholesale electricity costs. Modelling shows that even at a capped price of $12/GJ, a gas generator must recover at least $120/MWh to break even.

Modelling methodology and scenarios

Nexa Advisory used a Python simulation model reflecting the cost-minimisation logic of the AEMO’s Integrated System Plan. The modelling explored four scenarios: the Base Case (orderly transition), Major infrastructure delays (three-year delays to Snowy 2.0 and interconnectors), All infrastructure delays (broader intra-regional delays), and No additional gas (gradual retirement of existing fleet with no new builds).

Recommendations

The report provides four primary recommendations. First, state and federal governments must accelerate transmission build-out outside of ISP-planned projects by initiating a NEM-wide transmission review and creating accountability for delivery. Second, they should provide investor certainty to mitigate capital flight and ensure coal closures stay on schedule. Third, the back-up role of gas must be clearly articulated in climate and energy policies to support targeted measures like gas storage. Finally, the implementation of the NEM wholesale market settings review, including a strategic reserve mechanism, should be prioritised.

Appendix 1 – broader context of the debate about the role of gas in Australia

Gas infrastructure economics are becoming less favourable. Peak day shortfalls are projected in southern states from 2028, driven by peak day conditions and seasonal gaps. These gaps are estimated at 10-40 PJ annually between 2029 and 2032, rising to 90-140 PJ from 2033. This creates a ‘death spiral’ risk where falling utilisation drives up per-unit costs, potentially leading to stranded assets. The report suggests that flexible solutions like floating storage regasification units (FSRU) may be more viable than new permanent pipelines.