Head of the inquiry, Professor Anthony Owen, said NSW needed new electricity baseload generation by 2013-14, and a new power station should be built by the private sector and paid for by the sale of other government assets.

Owen said energy efficiency measures and renewables would be helpful but a coal-powered or gas-fired plant was necessary.

Without private investment, the NSW Government could be facing $15 billion for new plants, gas pipelines and associated infrastructure, he found.

Such infrastructure includes expansion of the state’s gas transmission network.

“Additional investment in an adequate and reliable NSW gas transmission network will be required,” Owen said.

The Australian Pipeline Industry Association was quick to respond.

“The Owen Report clearly identifies the need for private sector investment, but the private sector needs certainty before such commitment can be undertaken,” APIA chief executive Cheryl Cartwright said yesterday.

APIA has previously said that since privatisation and the introduction of the regulatory process, new pipelines in Australia are nearly always built to meet contracted demand and rarely built larger than initial requirements.

If spare capacity was built into the original design, there would be a risk that regulatory intervention could distort the pipeline’s value, forcing a less than optimal price for carrying gas.

This means pipeline owners build for contracted demand only, and when demand increases, invest later in looping and-or additional compression to squeeze additional capacity out of the original infrastructure.

APIA argues it would be far more efficient to invest upfront in bigger diameter pipelines with extra capacity, but this would invite unwelcome attention from regulatory bodies.

“Natural gas could be part of the future in the longer term for base-load power generation, but it needs to have appropriate government policies.”

Cartwright said that while power generation and the infrastructure to transport natural gas were best provided through private sector funding, investors needed appropriate government economic policies to encourage expansion of such infrastructure.

“Long-term investment in long-distance gas transmission pipelines should be encouraged by government policies,” she said.

“To provide the necessary transport for the increased demand for natural gas, the regulatory environment needs to ensure there is no restraint on investment in capacity.”

Another peak industry body, the Australian Petroleum Production and Exploration Association, pointed out the inquiry found that:

• Combined cycle gas turbines are among the most attractive sources of new power generation and could potentially provide lower-cost base load power than coal-fired generation;

• Gas-fired power stations can be built at less cost and more quickly than coal-fired generators; and

• Existing gas reserves (without any new discoveries) are sufficient for NSW electricity generation until 2020 and possibly well beyond.

APPEA and APIA both said natural gas had significant advantages over other sources of power. It has lower greenhouse gas emissions and uses less water in energy generation than does coal, is less expensive than renewable energy and, unlike proposed ‘clean coal’ systems, the technology is available now.

"Expanding the use of natural gas for electricity generation is a sensible way forward and would be big step towards a lower carbon future," said APPEA chief executive Belinda Robinson.

“Gas-fired electricity generation provides the opportunity to create a less carbon-intensive NSW and national electricity market at a time when Australia is developing comprehensive climate change policies.

“Coal seam gas – abundant in NSW – is a particularly ‘green’ form of natural gas, with very low levels of carbon dioxide.”

Upstream gas and power generation and retail major Origin Energy also had its say on the Owen Report, saying it was a wide-ranging inquiry that has outlined a robust blueprint for meeting NSW’s energy needs in the future.

Origin noted several findings by Owen:

• The National Electricity Market (NEM) is working efficiently and effectively and “provides a market that is efficient and protects consumers regarding price, quality, reliability and security of electricity supply”;

• In a competitive environment “prices would be lower than they would in a market dominated by government-owned companies”;

• Government ownership “neither increases nor decreases the state’s ability to ensure that price, social and environmental outcomes are achieved from the electricity industry”;

• The private sector has demonstrated it will invest in new generation in the NEM under the right conditions;

• Private sector investment will meet the state’s emerging generation needs while letting the government achieve its energy and environmental policy goals, maintain the state’s credit rating and improve its ability to deliver State Plan objectives; and

• “Investment in new baseload generation in NSW needs greater regulatory certainty about an emissions trading policy”.

“The NSW Government should implement the recommendations contained in the Owen Report,” managing director Grant King said.