The Case for a Fungible Capacity Market — and Why Gas Must Be Part of It

Everyone’s got a fairweather friend. They bring the energy, the good vibes, the spontaneous plans.

But, if we’re being honest, they can be a bit flighty at times. Great company, but not exactly known for showing up on time (or sometimes, at all). That’s why every crew needs the reliable one. The mate who remembers the booking, wrangles the group chat, and actually gets everyone to the pub.

Our energy system is not so different.

As we head toward a renewables-dominated grid, we’re relying more and more on sources that are clean, popular, and sometimes a bit unpredictable. That’s where gas-powered generation comes in.

It’s the dependable one. Maybe not always glamorous, and yeah, occasionally lights up a dart in the beer garden from time to time. But it shows up when it counts.

The problem is, we’re asking gas to be there without giving it any reason to stick around. Gas-powered generators are running fewer hours, earning less revenue, and facing growing uncertainty about whether they’ll be allowed, let alone encouraged, to play a role in the energy transition.

Yet AEMO forecasts show we’ll need around 15 gigawatts of new gas generation by 2050, with much of it required before our coal fleet closes. The shortfall cannot be fixed with optimism alone.

A fungible capacity market could change the story.

Unlike our current energy-only setup, which only rewards generators when they are producing, a capacity market pays them for being available when needed. It values reliability. It puts firming technologies like gas, batteries, pumped hydro and demand response on a more even playing field, and provides the long-term investment signals that have been missing.

And we need those signals soon.

Last week, South Australia gave us a clear example of why. For most of Tuesday, the state ran on more than 100 per cent renewables. Rooftop solar (light yellow), utility-scale solar (darker yellow), and wind (green) all delivered more than local demand.

But by evening, the sun had set, the wind had dropped, and gas (orange) was doing the heavy lifting, covering almost SA’s entire load, backed up by brown coal imports (purple) from Victoria.

That shift was not a blip. It lasted nearly three days before the wind picked up again.

This kind of swing, from exporter of clean energy to near-total reliance (98.4%) on gas and brown coal power imports, happened in just four hours. And it is not a rare event. It is becoming the new normal. This is not a criticism of renewables; it is just the reality of a weather-dependent system.

Quite simply, we need sources that can fill the gap when the weather forecast lets us down.

 But even that backstop is under pressure.

AEMO’s Gas Infrastructure Options Report warns that, without urgent investment, gas-powered generators in southern states may be unable to access enough fuel within a decade. The resource exists, but the infrastructure, policy certainty and commercial incentives to deliver it are missing.

If that does not change, planners will start designing the grid as if gas simply is not an option.

That would lead to more diesel generators, expensive batteries and overbuilt transmission. Not because those are better or lower-cost solutions, but because they are all that is left as options.

If there was ever an imperative to solve the east-coast gas supply issue, and fast, this is it.

But the role gas plays is not limited to energy supply. It supports the grid in other critical ways, providing inertia, voltage control, fast frequency response and black-start capability after outages.

Many of these services can be delivered without burning fuel, as long as the asset is online and ready. Modern plants can also be built hydrogen-ready or biomethane-compatible, aligning with long-term emissions goals while maintaining system stability today.

This is not about nostalgia for fossil fuels. It is about building a grid that is capable of handling what is coming, not just when the weather is good, but when it is unpredictable, volatile or extreme.

Gas is not the end goal. But it is the friend who shows up, keeps things on track, and makes sure the whole system does not fall apart when plans change at the last minute.

If we want that kind of reliability, we need to make sure GPG’s invite does not get lost in the mail.

Written by

Paul Purcell

Head of Policy and Advocacy

Australian Pipelines & Gas Association