The Federal Government has given an ultimatum to the private energy sector regarding the replacement of the Liddell coal-fired station, threatening to step in if no solution was found.
Prime Minister Scott Morrison said electricity generators must come up with a plan for 1,000MW of new dispatchable energy in time for the end of 2023. If there is no investment secured by April 2021, the Federal Government will build a state-run gas generator.
The Liddell Taskforce found closing the plant without adequate dispatchable replacement capacity risks prices rising by around 30 per cent over two years, or $20 per megawatt hour to $80 in 2024 and up to $105 per megawatt hour by 2030.
The Prime Minister said the potential price increases were unacceptable and would represent a huge hit to families, businesses and job creating industries in NSW if the energy generated by Liddell wasn’t replaced.
“Affordable, reliable and a secure electricity supply is critical to our JobMaker plan for households, businesses and industry,” Mr Morrison said..
“We won’t risk the affordability and reliability of the NSW energy system and will step in unless the industry steps up.”
Snowy Hydro Limited has been tasked with drawing up plans for a gas generator in the Hunter Valley at Kurri Kurri.
Energy Minister, Angus Taylor, said the new, dispatchable power should be the focus of the energy market, warning that current plans fall “far short of what is required”.
Mr Taylor said the market has a clear obligation, as an essential service, to step up and deliver affordable, reliable power for consumers.
Mr Taylor said that since 2010, investment in dispatchable capacity had slowed to a trickle, with only around 1.6GW of new dispatchable capacity connected in the national electricity market.
“Over the last decade, the private sector has not built a single new reliable power plant in NSW,” Mr Taylor said.
“The government has always been clear — we need to see life extension or like-for-like replacement of Liddell.
“If industry steps up, we’ll step back.”
Mr Morrison also announced a suite of measures to combat an imbalance in high gas prices for commercial and industrial gas users, compared to a profitable liquefied natural gas export market.
Concerns that local commercial and industrial users are paying more for gas than exporters are selling it for on international markets is one that the Australian Competition and Consumer Commission (ACCC) has raised for some time.
Mr Morrison said the government would reset the east coast gas market and create a more competitive and transparent Australian Gas Hub by unlocking gas supply, delivering an efficient pipeline and transportation market, and empowering gas customers.
The government will get more gas into the market by:
- Setting new gas supply targets with states and territories and enforce potential “use-it or lose-it” requirements on gas licenses
- Unlocking five key gas basins starting with the Beetaloo Basin in the NT and the North Bowen and Galilee Basin in Queensland, at a cost of $28.3 million for the plans
- Avoiding any supply shortfall in the gas market with new agreements with the three east coast LNG exporters that will also strengthen price commitments
- Supporting CSIRO’s Gas Industry Social and Environmental Research Alliance with $13.7 million
- Exploring options for a prospective gas reservation scheme to ensure Australian gas users get the energy they need at a reasonable price
The government will boost the gas transport network by:
- Identifying priority pipelines and critical infrastructure as part of an inaugural National Gas Infrastructure Plan (NGIP) worth $10.9 million that will also highlight where the government will step in if the private sector doesn’t invest
- Reforming the regulations on pipeline infrastructure to promote competition and transparency
- Improving pipeline access and competition by kick-starting work on a dynamic secondary pipeline capacity market
To better empower gas consumers, the government will:
- Establish an Australian Gas Hub at Australia’s most strategically located and connected gas trading hub at Wallumbilla in Queensland to deliver an open, transparent and liquid gas trading system
- Level the negotiating playing field for gas producers and consumers through a voluntary industry-led code of conduct, to be delivered by February 2021
- Ensure Australians are paying the right price for their gas by working with the ACCC to review the calculation of the LNG netback price which provides a guide on the export parity prices
- Use the NGIP to develop customer hubs or a book-build program that will give gas customers a more transparent and competitive process for meeting their needs
Mr Morrison said the new gas hub at Wallumbilla would form part of an east coast gas network that the Narrabri gas field in NSW could feed into once it is approved.
This gas hub is expected to see Australians reap the benefits of gas reserves while the nation remained a top exporter.
“Our competitive advantage has always been based on affordable, reliable energy. As we turn to our economic recovery from COVID-19, affordable gas will play a central role in re-establishing the strong economy we need,” Mr Morrison said.
Mr Morrison said the government would also work with state governments through a program worth up to $250 million to accelerate three critical projects – the Marinus Link, Project Energy Connect and VNI West interconnectors.
“These links will help put downward pressure on prices, shore up the reliability of our energy grid and create over 4,000 jobs,” Mr Morrison said.
“Our plan for Australia’s energy future is squarely focused on bringing down prices, keeping the lights on and reducing our emissions, and these interconnectors bring us a step closer to that reality.”
The Australian Energy Council (AEC) said the Federal Government’s approach may end up being counter-productive.
AEC’s Chief Executive, Sarah McNamara, said, “The sector is struggling to make final investment decisions in an environment of ongoing policy uncertainty.”
The AEC noted that the government’s energy advisers, the Energy Security Board, had said government interventions or “even discussions and ‘threats’ of intervention” act as a deterrent.
“For more than a decade we have been warning of the dampening effect State and Federal Government interventions have on investor confidence,” Ms McNamara said.
Clean Energy Council Chief Executive, Kane Thornton, said, “Wind, solar and storage technologies are by far the cheapest form of new electricity generation for Australia and can provide the flexible, reliable and secure generation we need.
“A new gas-fired power station will also take years to build. It would be far more sensible for the government to support new big batteries than gas-fired electricity generators that are high cost.
“Any government funding for a new gas-fired electricity generator would be better spent on much-needed new transmission.”
APPEA Chief Executive, Andrew McConville, argued that the government’s recognition of gas in its economic recovery plan was a “good first step to reinvigorate Australia’s oil and gas industry”.
“Reliable and competitively priced energy is crucial to the health of our nation’s economy,” Mr McConville said.
“While the average wholesale gas price in Australia last year was around 40 per cent less than the average wholesale price for the Asia Pacific region, more can be done to lower the retail price paid by consumers and businesses.”