AGL Energy closes gas power plant a decade early amid losses
AGL Energy brought forward the closure of its Adelaide gas plant after revealing it was losing millions of dollars amid a wave of cheap renewables and looming competition.
AGL Energy brought forward the closure of its Adelaide gas plant by nine years after revealing it was losing millions of dollars amid a wave of cheap renewables and looming competition once a NSW interconnector opens.
The situation has become so acute that the South Australian government stepped in with $20m in funding to ensure the Torrens Island gas units remain operating until 2026, helping keep the state’s power grid stable and delay the potential shutdown of part of plant in 2023.
“We are losing money here with this power station in the current environment,” AGL’s chief operating officer Markus Brokhof said on Thursday.
Under a deal with the Malinauskas government, AGL will receive $19.5m spread over the next three financial years to guarantee supplies from the ageing facility are fed into the grid. The money will be spent on maintenance for one of three remaining units – known as B2 – to ensure it can run for a further four years.
“The government has committed some funds to conduct this major outage for AGL,” Mr Brokhof said. “And that will enable us to run the three units until 2026.”
AGL blamed the construction of a new transmission line with NSW which will slash profits from the Torrens plant, which started operations in 1976.
It follows a decision last year to initially mothball one of the four gas power units, which that unit closing in October 2021.
The new 2026 shutdown date compares with its expected closure of 2035 under current Australian Energy Market Operator forecasts and adds to the growing list of major power stations accelerating their exit from the grid amid a fast-moving switch to clean energy from coal.
The old near half-century old gas plant was unable to quickly fire up to fill any troughs in the market which led to it being financially exposed when wholesale prices traded at negative levels as solar and wind flooded the grid.
AGL pointed the finger at a under-construction power cable, Project Energy Connect, which will transmit electricity including coal but also a greater share of renewables between NSW and South Australia and further damage earnings from the gas station once it starts up in mid-2026.
SA Energy Minister Tom Koutsantonis said EnergyConnect had hastened the demise of fossil fuels in the state and pointed to ElectraNet’s business case for the interconnector which found Torrens would shut by 2027.
“The interconnector has claimed its first victim which is AGL’s Torrens Island power station,” Mr Koutsantonis told ABC Radio on Thursday.
“It means that South Australia loses some of its sovereign capacity to produce its own power.”
AGL is building a 250MW big battery at Torrens to start operations in mid-2023 and also opened the 210MW Barker Inlet gas plant at the site in 2019, a modern plant better able to respond to energy supply gaps in the market.
The state’s power grid has been under the spotlight in recent weeks after major power outages following widespread storms which saw the Victorian interconnector damaged.
AGL said the closure decision was not expected to have a material impact on earnings in the financial year or over the longer term due to its meagre profits.
EnergyConnect is seen as a critical link for NSW when old coal plants in the state retire by allowing renewables to be imported from SA, avoiding big jumps in wholesale electricity prices.
Grattan Institute energy and climate change director Tony Wood said the closure of Torrens Island B posed reliability challenges for the SA electricity grid, but with the closure not scheduled for another four years there was ample time to plan.
“The first reaction is reliability, the second reaction on reflection is probably ‘what’s it going to cost to maintain reliability as this thing shuts down’,’’ Mr Wood said.
“We’ve got four years’ notice so I think there’s plenty of time to address the imperative which I think is, how are we planning to make sure that South Australia has the investment that’s going to maintain the reliability at a cost that remains affordable.’’
AGL laid out a plan in September to exit coal by the middle of 2035, bring forward the closure dates of both its big Bayswater and Loy Yang A coal plants – and has set an interim target of owning 5 gigawatts of renewable and firming assets by the end of the decade.
The power player last year cited challenging market conditions for the decision to mothball one of the units, saying declining forward prices in South Australia and the volume of new renewable energy coming into the market that AGL says makes keeping all four units running unviable.
Mike Cannon-Brookes, AGL’s largest shareholder, has staged a high-profile campaign through his privately owned Grok Ventures to refresh the board amid a broader effort to accelerate a transition to renewables.
The billionaire managed to install four new directors at its annual meeting this month, after previously derailing its demerger, sparking the exit of both its chief executive Graeme Hunt and former chairman Peter Botten.
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