AGL Energy and EnergyAustralia are pencilling in decisions to build gas-fired power stations by early next year but the federal government’s new target of 1000 megawatts committed in NSW by April looks set to be missed, with no evidence in any case that so much capacity is needed.
The interventionist approach in energy outlined by the Morrison government on Tuesday also risks being counter-productive, deterring companies from investing in new generation given the overriding threat of taxpayer-funded power plants, industry sources said.
AGL chief executive Brett Redman said the company is expecting to give the go-ahead “by early 2021” on a gas-fired power station near Newcastle that will help replace coal-fired generating capacity in Liddell to be closed down in 2022 and 2023.
The $400 million project involves a 250MW gas and diesel-fired generator at Tomago.
EnergyAustralia has been targeting September for a final investment decision on a $400 million gas-fired generator at its Tallawarra site in the Shoalhaven region, involving a further 300MW of capacity that would be online before Liddell shuts.
But those plants, if approved, leave commitments 300MW short of the target given on Tuesday by Prime Minister Scott Morrison. He said that missing the target would trigger the government – through government-owned Snowy Hydro – taking forward plans to build a gas-fired power station at Kurri Kurri in the Hunter region.
The Australian Energy Market Operator late last month said that the outlook for reliable NSW supply once Liddell closes in April 2023 had improved due to an upgrade of an interconnector with Queensland, new renewables supply and planned grid-scale batteries by AGL and others.
While it advised that NSW could breach tightened interim reliability standards for electricity supply in 2023 if no further capacity was added, it pointed to several proposed new plants in the wings.
“At this point, everything we are seeing is showing that capacity is being replaced by other resources,” AEMO chief executive Audrey Zibelman said then.
But Mr Morrison said 1000MW of new dispatchable generation was needed by the summer of 2023-24 to prevent wholesale prices jumping by 30 per cent when Liddell closed.
Grattan Institute energy expert Tony Wood said it wasn’t obvious the extra capacity was needed, pointing to the AEMO’s forecast. He said the government’s interventionist approach risked being counter-productive and potentially costing consumers more.
“The market doesn’t need it,” he said. “AEMO’s own numbers show [the need for] 300MW, that’s about the size of one gas peaker.”
Government interventions and threats of intervention in electricity supply, as well as policy uncertainty, are already deterring investors, said Australian Energy Council chief executive Sarah McNamara.
“There are no material reliability concerns that would warrant this kind of interventionist approach, and there are already mechanisms in place to address any shortfall identified,” she said.
But Snowy Hydro chief executive Paul Broad backed the federal government’s aim of averting the sort of spike in power prices seen when the Hazelwood coal generator closed in Victoria. He said power suppliers had held back on committing to build new capacity, while Snowy saw a sound business case for building a new gas power station in the Hunter Valley.
“We think that the economics for us to build something are strong, and if need be, while we’ve got a lot on, we would certainly be ready to do so if the others don’t step up,” Mr Broad said.
Mr Redman said AGL is “fully aligned” with the Morrison government’s objectives of providing secure and affordable energy and noted the supplier has led investment in the energy market, including the only new gas-fired power plant built on the east coast in the past seven years, in South Australia.
“The future of energy requires a combination of technologies and gas is a critical part of that transition, as are renewables and the firming technology that increases their reliability,” Mr Redman said.
“With today’s announcement we will continue our closure and transition plans for Liddell with certainty, while at the same time progressing our investments in projects that transition our energy portfolio, with a focus on dispatchable and firming technology that deliver on our customers’ needs.”
Alinta, which owns a coal-fired power station in Victoria, also has early plans for a new gas-fired generator in South Australia but that is sitting on the shelf.
Several gas-fired power plant proposals are also going through the federal government’s Underwriting New Generation Investments scheme, which wasn’t mentioned in the Prime Minister’s address on Tuesday.
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