Federal Energy Minister Angus Taylor has pulled the trigger on a $600 million gas power plant in the Hunter Valley, NSW, to settle nerves among his teammates in the Coalition Government over the closure of the Liddell coal power plant in 2022.
A new 660MW gas plant to be built near Kurri Kurri may go some way in replacing the 2GW generated at Liddell, but it will send a chill up the spine of developers of new wind, solar and storage projects as NSW seeks about 12GW of generation and 2GW of storage for its renewable energy zones program.
EcoGeneration cast about its clean energy contacts to gauge sentiment towards a new gas facility, to be owned and operated by Snowy Hydro. This commentary will be grow as we hear back from more respondents.
Andrew Blakers, professor, Australian National University
Gas produces only 5% of the electricity in the National Electricity Market, and falling. Batteries, pumped hydro and demand management are steadily eating the residual gas market for peaking. This is a waste of money.
Tristan Edis, director analysis and advisory, Green Energy Markets
The stated reason for building this project – to cover the exit of Liddell – makes no economic sense. From a reliability perspective it isn’t needed. From the perspective of containing prices it also doesn’t make sense. NSW power prices on the forward market for 2024 (when Liddell will have exited) before the government announced its interest in building the Hunter Gas plant were around mid to low $40/MWh, which is not far off record lows once you correct for general inflation. Since the government publicly flagged a serious intent to build the Hunter power plant, prices for 2024 power have gone up and now sit at about $57/MWh. According to the environmental impact statement for the project it will only operate on average at 2% of its rated capacity. To cover the power plant’s cost of $600 million on a timeframe of 15 years will require it to sell its power at almost $350/MWh just to cover the capital. To cover the fuel cost for diesel (a pipeline for gas supply is not in place) would require at least another $200/MWh. This will not be cheap electricity. The only reason this project might make sense is as insurance against the potential early closure of another coal power plant beyond Liddell, which is a real possibility.
Sally Torgoman, managing director infrastructure lead advisory, PwC
We are at the precipices of clean energy ideology. To gas or not to gas, that is the question. Those of us who are pro gas will view this as an attempt to keep the gas lifeline strong, a known reliable technology that isn’t as dirty as others. Those of us against gas will be disappointed by the use of taxpayer funding of a dirty fossil fuel, wondering how we are to achieve net zero. Yet, all of us know that 660MW is a speckle of the 40GW-plus needed to displace retirement of coal, and the $600 million announced is unlikely to cover the building of the gas plant or any other generation needed. Instead, let us focus on what really matters now and that is how to encourage private investment by solving transmission and demonstrating an investable energy market.
Huon Hoogesteger, managing director, Smart Commercial Solar
The plan is relatively naïve to the opportunity afforded by the latest storage technology. I am very familiar with that site. Kurri Kurri has a beautiful interconnection from two zone subs and is a very logical position for a solar-and-battery (plus generator, if required) location.
In 2019 we had spec’d up a 35MW system on the flood plains in the area. It is a perfect location for a battery, which would have been able to be built using private money. Then, $600 million would have bought the state a 1.37GWh battery or we could have had 35MW solar, a 1.2GWh battery generator capacity. It would have been used much more and given a greater bang for buck as it could access FCAS markets and shorter-term response times than a gas system can achieve – and soak up energy when there is an oversupply. Gas can’t do that, which is just as important now as generation capacity.
Felicity Stening, CEO, Enova Community Energy
I’m disappointed in the federal government’s determination to continue investing in outdated and unnecessary gas projects. Enova Community Energy is focused on and committed to achieving a 100% renewable energy system. We don’t and won’t sell gas. Enova has been making the case since its inception that a paradigm shift is needed, towards a decentralised renewable energy system, based on investment in renewable energy projects and technology, and the implementation of microgrids, community scale storage and virtual power plants, with the aim of creating local resilience.
Will Mosley, head of business development, RayGen Resources
Our long duration [concentrated solar power] storage could have provided the equivalent grid reliability as these open cycle gas turbines, but at lower cost, with zero emissions and manufactured in Australia. Unfortunately, there was no tender.
Bjorn Sturmberg, research leader battery storage and grid integration program, Australian National University
The federal government’s decision to fund a new gas generator is at odds with the needs and trends of the economy and climate. The government is betting against the billion-dollar investments the private sector has recently made into big batteries in NSW and the trillion-dollar investments governments have made globally into green recoveries from the covid pandemic. It runs counter to the IEA’s calculation that gas consumption needs to drop by 55% by 2050 to give the world an even chance of limiting the global temperature rise to 1.5°C. Sadly, I believe this will be shown to be $600 million placed on the wrong side of history.
Dani Alexander, research principal, Institute for Sustainable Futures, University of Technology Sydney
At the end of the day, it is an expensive and short-term solution. Low regret (low cost and low carbon) solutions will come from renewable energy, supported by energy efficiency and demand flexibility. Previous research from the Institute for Sustainable Futures has compared a majority gas-fired solution with a clean energy solution comprising a mix of wind energy, efficiency, demand response and batteries in the Hunter region. The results clearly show that, over five years, the clean energy option would be $1 billion cheaper and would save an additional 6.2 million tonnes of carbon dioxide. A $600 million gas gamble is a high-risk, low-return strategy.
Finn Peacock, founder, Solar Quotes
I honestly think this is not a decision based on ideology or politics. I think it is a decision based on fear. The decision makers are genuinely scared that we’ll “run out of energy”. Rather than ridiculing the decision, we need to double down on educating the decision-makers and the public on the alternative to new gas generation for filling the occasional gaps.
Bruce Robertson, analyst gas/LNG Australia, IEEFA
The federal government’s gold plating of the electricity generation sector will lead to higher power prices for consumers. According to Snowy Hydro, the government’s announced Kurri Kurri plant will operate only 2% of the time. Snowy Hydro already has a virtually unused gas peaking plant at Colongra just south of Newcastle. It is virtually unused – working at just 0.2% in the last year. In Australia, gas usage for gas-powered generation has already declined by 42% since 2014. We don’t need more gas plants.
Marija Petkovic, managing director, Energy Synapse
It is bewildering that the federal government would choose to fund a very mature fossil fuel technology, like gas-fired generation, especially at a time when we should be working towards deep decarbonisation of the grid. The ill-thought-out interventionist approach of the federal government continues to create a huge and unnecessary risk for private investors in the sector. Ultimately, is it consumers who will pay for this.
Amarjot Rathore, senior electrical engineer, ACT Government
An announcement about a gas peaking plant in the NSW Hunter Valley won’t tick any of the boxes. This plant will not reduce energy prices or have any perceivable impact on the security and reliability of the electricity grid. I suspect the Snowy Hydro board members will reject this offer or use the $600 million cash allocation to build a large-scale battery energy storage facility.
Kane Thornton, CEO, Clean Energy Council
Government intervention to directly build their own high-cost generation is not only a poor use of taxpayer funds but also further undermines investor confidence in new generation. In the Clean Energy Council’s most recent survey of CEOs of Australia’s leading renewable energy investors, after challenges with the grid, ‘unpredictable or unhelpful government intervention in the energy market’ rated as the second most significant challenge. If Australia is to ensure we effectively manage the transition of the energy system, we need to restore confidence in the role of governments to work collaboratively and focus on clear market signals for investment and customer confidence.
Jacqui Fetchet, founder Bright Sparks Crew and energy lawyer
From the perspective of young people, the $600 million Kurri Kurri gas plant subsidy is the Commonwealth government funding a stranded asset and turning a blind eye to the abundant lower-cost, lower emission solutions available in the market today. Post-covid, governments have a unique opportunity to build back better – the gas plant is a lynchpin of the “gas fired recovery” and Australia continues to be a global laggard, spending just 2% of economic stimulus packages on “green” initiatives. This move demonstrates the Commonwealth still clinging to the fossil fuel industry to fund an otherwise uneconomic plant. At the same time other governments, investors, financiers and voters (especially young people) want and are working towards a clean future.
Amy Kean, director, Stride Renewables
It is interesting to see this federal government intervention, which doesn’t appear to be driven by economics or competition, both in terms of capital costs or ongoing operation.
Richie Merzian, director climate and energy program, Australia Institute
It should serve as a major warning sign that the private sector refused to meet Minister Taylor’s deadline of April 30 to announce new gas projects, not an invitation to force taxpayers to subsidise more fossil fuel projects. How bad is the business case for Kurri Kurri if Snowy Hydro needs the entire $600 million capital cost covered by taxpayers rather than this handling this all off the books. In making this decision the government has ignored the advice of its own Liddell Taskforce, the Australian Energy Market Operator and the Energy Security board.