Gas and energy policy

By Jordan McCollum, National Policy Manager, APGA

The past year has seen considerable focus on the electrification of gas use in the home. But what if electrification of gas demand isn’t the panacea which advocates claim it to be?

A Frontier Economics study indicates that electrification of residential gas demand may in fact have a net zero competitor in renewable gas thanks to the lower cost of gas appliances.

The Gas Appliance Manufacturers Association of Australia (GAMAA) find themselves at the centre of the debate around electrification of gas use in the home. Approaches taken within a range of government and non-government analyses have all taken a strawman approach to considering the cost of net zero energy in the home, underestimating electrification appliance cost as a result.

Core to this strawman approach is a focus on energy bill savings coupled with a simplistic view of residential appliance cost. Taking this approach, several reports have heralded the bill saving opportunities of electrification despite the very real possibility that residential customers may spend more on the appliances required to electrify their gas demand than they would ever save on their energy bills.

While energy bills are the most frequently experienced energy cost, the total cost of heat in the home includes the cost of appliances as well as the cost of energy used in appliances. It is possible for the cost of an appliance to well outweigh the energy savings which they deliver, resulting in a net cost to households despite energy bills being reduced. This is generally accepted as impacting renters and homeowners alike, with renters experiencing appliance costs through increased rental costs.

Concerned that residential gas customers were being led into higher overall energy costs, GAMAA engaged Frontier Economics to undertake wholistic analysis of electrification of gas demand. Taking a more robust approach than previous studies, Frontier Economics found that freestanding homes in Victoria would need to achieve annual bill savings of between $1,600 and $4,000 to break even while achieving the same level of heating amenity through the electrification of existing gas appliances.

The Victorian Government anticipate bill savings of $1,020 and $1,250 can be achieved through electrification of gas appliances in the home within the Victorian Gas Substitution Roadmap. Combining Frontier Economics break even bill saving requirements with Victorian Government bill saving estimates, Victorian households in freestanding homes risk losing $350 to $2,980 on a yearly basis through the electrification of gas appliances when choosing to maintain the same level of heating amenity which they enjoy today.

Frontier Economics come to this conclusion by considering the full extent of costs involved in electrifying residential gas appliances. Where appliance cost analysis tends to stop at appliance purchase and installation costs, this study considered the cost of removing existing appliances, including any rectification work that might be required such as covering up existing ducts, plastering, and painting.

Importantly, the study considered that households can choose to either maintain or reduce their current heating amenity through the electrification process. 

Further, to consider a possible cost premium for hydrogen ready gas appliances in the future, Frontier Economics conservatively added thirty per cent gas appliances costs. This represents conservatism on the part of Frontier Economics considering international evidence that one hundred per cent hydrogen appliances will cost no more than the natural gas appliances of today.

Having considered a fuller analysis of electrification costs, the study found that electrification of gas appliances in freestanding Victorian homes would cost between $21,500 to $42,000. 

This is between $7,500 to $15,500 more than replacing existing gas appliances with hydrogen ready gas appliances. This casts a long shadow on analysis undertaken alongside the Victorian Gas Substitution Roadmap which anticipated total gas appliance replacement costs of $18,400.

More important than what this study says in and of itself however, this study represents an important building block towards the holy grail of renewable gas advocacy – calculation of the levelized cost of heat for renewable gas use in the home. The release of this report provides the final piece of the puzzle to undertake macroeconomic analysis of the entire energy supply chain right the way to the thing that matters most to customers – the cost of zero carbon heat.

Prior to this study it was possible to combine the Australian Energy Regulators breakdown or retail electricity and gas costs with renewable gas production and infrastructure cost estimates to determine that net zero retail gas will be cheaper than net zero retail electricity. 

Now, with an understanding of appliance cost and efficiencies, it will be possible to determine whether renewable gas competes with renewable electricity when it comes to gas use decarbonisation in the home.

For majority of the renewable energy campaign, the only broadly accepted solution to fossil fuel decarbonisation has been renewable electricity. This has meant that we have had to accept that we will have to sacrifice the amenity of today to achieve the emissions reduction of tomorrow. This paradigm however is starting to breakdown.

It is becoming more widely accepted that renewable gases will be key to decarbonising fossil fuel use in industrial settings and hard to abate sectors, no longer requiring the sacrifice of entire sectors of energy intensive industry.

 If lower cost net zero retail gas combines with lower cost renewable gas appliances, it may be possible to provide competitive renewable energy to the residential gas customers of today without having to sacrifice amenity, cost, or customer choice for gas appliances in the home. 

For more information visit the APGA website.

This article is featured in the September edition of The Australian Pipeliner.

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