?? 'Renewable Gas' Campaigns Leave Victorian Gas Distribution Networks and Consumers at Risk

Welcome to the fourth edition of IEEFA Asia Pacific Insights LinkedIn #newsletter featuring some quick insights on the issues related to energy markets, trends and policies focused on a sustainable and profitable energy economy.?

'Renewable Gas' Campaigns: Navigating Risks in Energy Transition

In this edition, we bring to light an insightful research report by Jay Gordon and Kevin Morrison at the Institute for Energy Economics and Financial Analysis (IEEFA) Asia Pacific. The report highlights significant challenges and risks associated with campaigns by Victoria's #gas distribution networks promoting 'renewable gas' to residential customers. The findings have profound implications for stakeholders within the energy sector and beyond.

KEY FINDINGS

• Campaigns to promote ‘renewable gas’ could leave Victoria’s gas distribution networks exposed to significant reputational and legal risk, which should be considered by financiers.
• The ‘renewable gas’ future the gas distributors promote is at odds with proposed plans they have submitted to the regulator, which include A$461 million in risk mitigation for an electrified future, compared with A$19 million for ‘hydrogen readiness’ activities.
• Australia’s governments and regulators should work to protect consumers from potential stranded investments in gas appliances and in gas distribution network assets.

Gas distribution networks and their industry representative bodies have been promoting the message to households that their gas network infrastructure will continue to be used under a transition to net #zeroemissions. They have asserted that gas distribution infrastructure?will likely be repurposed to deliver ‘renewable gas’ to homes, derived from either #biomethane or #hydrogen, instead of the current supply of #fossilgas.

These campaigns are inconsistent with the compelling evidence that electrification is the best option for decarbonising household fossil use. #Electrification would cost less than switching to biomethane or hydrogen. Moreover, there are serious technical constraints to relying on #biomethane or hydrogen for household energy use; by contrast, electric appliances for cooking, space heating and water heating are mature and already widely used by many Australian households.

"An electrified household may require less than one-fifth of the energy of a gas-reliant household to meet the same needs.” Jay Gordon , Research Analyst at IEEFA focusing on the Australian electricity sector.

Especially concerning is the fact that the messages presented in Victorian gas distribution networks’ ‘#renewablegas’ campaigns appear inconsistent with their own statements to regulators, their investment plans, the opinion of the regulator and energy market consumer representatives.

Victoria’s gas distribution networks have requested to recover an additional A$461 million in accelerated depreciation costs from consumers over the next five years, of which A$333 million was granted by the Australian Energy Regulator (AER), equal to nearly 7% of their total asset base.

Accelerated depreciation in gas networks was first argued for in 2020 by the Australian Gas Infrastructure Group (AGIG) for its Dampier Bunbury gas pipeline in Western Australia. AGIG argued that the improving economics of renewable electricity, combined with government emissions policies, were likely to lead to a decline in demand for fossil gas supplied through their network, leading to asset stranding risk.?

Meanwhile, the networks have proposed only very modest expenditure, A$19 million, on preparing their networks for hydrogen, which the regulator allowed despite finding that it was non-conforming with respect to the National Gas Laws. An additional A$6 million in proposed operating expenditure is on ‘renewable gas’ promotional campaigns, to be partially charged back to consumers.

IEEFA notes that gas distribution networks could be exposed to substantial risks by encouraging consumer investment in gas appliances under the assumption of their relevance in a 'renewable gas' future. The Australian Consumer and Competition Commission ( ACCC ) has warned?against businesses engaging in misleading conduct, and Victoria’s gas distribution networks could be at risk of an investigation as a result of their ‘renewable gas’ campaigns.

Given the potential for #investments reaching billions of dollars, any failure of a 'renewable gas' future could lead to material financial consequences. IEEFA suggests that financiers consider these risks in their #capital allocation.

Governments and regulators are urged to ensure the legality of networks' campaigns under consumer law, and to only approve 'renewable gas' expenditure that is aligned with the long-term interests of energy consumers.

For further insights, read the report: 'Renewable Gas' Campaigns Leave Victorian Gas Distribution Networks and Consumers at Risk

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