Surging gas prices across Australia has made the transition to all electric buildings urgent in both the commercial and residential sectors, according to industry experts. 

While gas prices are likely to stay high for some time, the good news is that there are practical steps that commercial property owners, homeowners and governments can take to alleviate the pressure.

A perfect storm

Both at home and abroad, a number of factors have fed into an unprecedented rise in the cost of gas, which let’s remember, is toxic methane gas.

Internationally, Russian President Vladimir Putin’s invasion of Ukraine has led the European Union to diversify away from Russian gas, leading to increased competition for alternative gas supplies, which is driving up prices internationally. 

Not that the gas companies have behaved in exemplary ways. They laid off thousands of workers during the pandemic, despite taking billions in bailouts and subsidies from governments. They cut production volumes for oil and gas as the price of oil briefly went negative in April 2020.

In the US, fossil fuel companies reportedly cut 58,000 jobs despite $US8.2 billion ($AU11.3 billion) in handouts. In Australia, at least 2615 gas industry workers were laid off in the 12 months to December 2020, according to Australia Institute figures, or around 10 per cent of its workforce.

LEARN MORE:

Energy Efficiency Council chief executive Luke Menzel told The Fifth Estate, there have also been a few local factors that have contributed to the surge in prices at home.

“We’ve got a number of aging coal fired power stations that are running at reduced capacity or are completely offline. That means that we’re using more gas in the national electricity market than we otherwise would, which is placing increased pressure on local gas supplies,” Mr Menzel said.

“On top of that, we have had this incredible cold snap on the east coast of Australia, especially in places like Victoria that are heavily reliant on gas for heating.”

“That’s post placing even more pressure again on those supplies so their supply constraints are feeding into high gas prices, but also feeding into higher electricity prices. And so we’re getting a double whammy which is hitting both business as well as retail customers.”

Deeper structural issues in Australia

Structural factors in the Australian market led the ACCC to warn in August 2021 that a “supply shortfall in Australia’s east coast gas market is increasingly likely”.

Back in 2002, former prime minister John Howard announced a $25 billion “gold medal” deal to supply gas from the North West Shelf to China. But while 15 per cent of the gas available for export must be reserved for domestic use on the Western Australia grid, no similar safeguard was used for the east coast grid.

Malcolm Turnbull created a mechanism that allows the federal government to force gas to be set aside for domestic use, called the Australian Domestic Gas Security Mechanism, but it was not invoked by the previous Morrison government – despite the ACCC’s warning.

In terms of new commercial buildings, it makes it almost a lay down misère. All-electric is the way to go for large commercial buildings. It’s a direction that the sector was already going. What’s going on gas markets acts as an accelerant.

Luke Menzel

“Energy experts have been concerned about the gas shortfall on the east coast of Australia for some time,” Mr Menzel said. “There have been warnings over time that such a shortfall could take place. What nobody could have foreseen is the war in Ukraine and the incredible pressure that has put on international gas markets.

“Could various governments have done more in planning for that expected shortfall? Yes, absolutely. But would we have had some sort of significant issue even if we had taken action [through general energy efficiency and electrification measures] six, 12, 18 months ago? Absolutely.”

What does this mean for commercial building owners?

For commercial building owners the impact is probably going to be less than for industry. What it does do though is to make all-electric retrofits of buildings far more urgent. 

Mr Menzel said he expects recent events to drive conversation around electrification of space heating and hot water in large commercial buildings. 

“I know it’s already on the agenda for many of them. But these sorts of gas prices we’re facing, that really supercharges the business case for working through some of those upgrades. 

“In terms of new commercial buildings, it makes it almost a lay down misère. All-electric is the way to go for large commercial buildings. It’s a direction that the sector was already going. What’s going on gas markets acts as an accelerant. We can see more and more activity in that space moving forward.”

But what can ordinary households do?

For residential property, longer term structural changes are needed to be made to move households off gas. These include swapping gas cooking appliances for electric ovens, installing electric or solar hot water systems, and replacing gas heaters with reverse cycle air conditioners.

“Look at energy use in the home in terms of 60 per cent for space heating and 20 per cent for hot water. If you pick off those two big items, then you’re starting to get some real dividends,” Mr Menzel said.

For consumers, in the shorter term, making your home more energy efficient can be as simple as finding some how-to guides on YouTube and taking a trip down to the local Bunnings. 

There’s relatively quick fixes like draft proofing and there’s also reverse cycle airconditioners instead of gas for heating, Mr Menzel said.

“By making a choice to leave the gas heater off and you use the RCAC, they’re effectively switching over from a gas heater to an electric heater without having to do anything other than finding a setting on the remote control,” Mr Menzel said.

A big role for governments 

Mr Menzel said the Victorian government’s upcoming Gas Substitution Roadmapit provides a “great framework” to supercharge sensible activity already underway to help the transition from gas to electric buildings powered by renewables.

The state also offers a range of subsidies for energy efficient appliances and solar panels to home owners and tenants through VicSolar.

“You’ve seen some Victorian programs focused on replacing gas heaters, wood fired heaters and electric resistive heaters with heat pumps and reverse cycle airconditioners. Let’s focus on vulnerable households. That’s a really good program. And there’s a strong case for it being rolled out more broadly,” Mr Menzel said.

While Victoria is more reliant on gas than other states, its policies offer a great example to other states, Mr Menzel said. 

“I think that there’s an opportunity for other states to look at the work Victoria’s done, and some of that long term strategic thinking around what the future of those gas networks is something that is going to need to be reached in a bunch of different places around the country.”

LEARN MORE:

UPDATED 5.05 pm AEST to clarify a quote.

Leave a comment

Your email address will not be published.