Australia needs a gas transition plan, fast: Grattan

As the use of gas across Australia declines, the Grattan Institute said the government needs a strong gas transition action plan to ensure the process is not costly, chaotic and inequitable.

"Australia is at a critical juncture in energy policy. The decisions made now around gas will have lasting ramifications. The gas transition will not get easier or cheaper if we wait. The choice is between chaotic and inequitable, or steady and fair. It's time to move," the report said.

The Out of gas: Managing the decline of gas in Australia report said the fall in the use of gas has created new problems in the energy market.

"Electricity networks are under strain, backup generation for the power system is not being built fast enough, gas bills are rising, and manufacturers are closing," the report read.

"The energy transition is also a transition for gas - from a widespread fuel to one that occupies some vital but small niches in a mostly-electrified economy."

The report said the government must take control to both accelerate and manage the gas transition. To phase out the use of gas, it recommended methodically and predictably reduce gas use across the economy which would include setting phase-out dates for the use of gas in households.

"Each sector will move at a different pace, depending on its options. Even in a mostly electric economy, there will still be some residual demand for gas," the report read.

To meet this demand, the report said Australia will need supplies of renewable gases such as biomethane and hydrogen, which the government can drive through the development of targeted grants, finance and a demand-side obligation.

A declining gas market will need to be managed very differently, the report said, to avoid sky-rocketing prices for consumers and stranded assets for gas network owners.

The role of gas-powered electricity generation is also changing, which is running less often, but is increasingly valuable as a backup during rare renewable energy droughts, the report said.

"The federal and state governments should use upcoming reforms to the wholesale electricity market to remove financing barriers for new gas-powered generators," the report read.

"Without integrated planning, consumers and taxpayers are exposed to the risk of over-investing in gas and under-investing in electricity infrastructure. Gas and electricity system planning should be integrated to keep infrastructure costs low and ensure the electricity network can handle increased demand from gas-to-electric switching."