Gas plant at Kurri Kurri a no-brainer with batteries on hold
It is true Energy Minister Angus Taylor had made it quite clear back in September that if the private sector could not commit to deliver 1000MW of power to replace AGL’s Liddell coal-fired power station by April 30, the federal government would step in. And that was well before the news of Upper Hunter MP Michael Johnsen’s misdemeanours which forced his exit and the by-election. But the government then held back for almost three weeks before confirming that the government-owned Snowy Hydro had the green light to build at Kurri Kurri.
There has been loud criticism from both the renewables sector and free marketeers about Kurri Kurri but the decision should have surprised no one.
The reason is simple: the government sees serious political risk in spiking energy prices and does not have the confidence that battery or any other renewable friendly storage options will solve the problem over the next few years.
The decision is a continuation of an interventionist policy over almost four years now, using taxpayer funds to keep electricity prices down. Unfortunately, leaving the Australian market to pure price signals when there is a lag effect is what triggered the intervention in the first place (and not helped by at least one gentailer taking advantage of the situation).
Like borders, electricity prices can swing votes. Yes, this dastardly state intervention may well create more investment uncertainty, but the argument that batteries can replace peak gas by 2023 must be challenged.
Of the dozen or so utility-scale battery projects in NSW, not one is up and running or at final investment decision. All but two propose to run for less than two hours.
A 1200MW battery, to be built by CEP Energy, was announced in February, aiming for a financial close in the first quarter of 2022. There is no guarantee this timetable will be achieved. In the near term, gas peakers will be needed because batteries can’t yet do what is required. Sure, four to eight-hour batteries will soon be able to shave off more of the evening peak in electricity demand most of the time. They cannot, however, deal with an extreme weather pattern that sets in for a month. Kurri Kurri may only be used for 2 per cent of the time, but it is built to be there precisely when batteries run out of puff.
On three days earlier this month the Tomago aluminium smelter, which uses 12 per cent of the state’s electricity, was forced to stop manufacturing to help keep the lights on. In what the business calls a minor dress rehearsal for what might happen, wholesale electricity prices spiked as solar and wind energy fell away just as demand peaked and just as planned and unplanned maintenance put units of Liddell and two other power stations out of service.
If Tomago loses power for more than three hours, its pot lines freeze. Batteries, according to CEO Matt Howell, can power the plant for just eight minutes.
It is uncertain what the government’s announcement on Kurri Kurri means for Andrew Forrest’s Squadron Energy plans to build a hydrogen and gas plant near its proposed LNG import terminal at Port Kembla. But it is passing strange that Forrest’s power plant is billed as green and the government’s plant as dirty fossil fuel.
Hydrogen power may be coming, but not by 2023 when Liddell closes. The Squadron plant (financial close planned for mid-2022) will be gas-powered.
Both the government’s and Squadron’s gas plants will be built to take hydrogen at some stage but today hydrogen is completely uneconomic.
Forrest is committed to the import terminal and there is $30 million in the government budget for the gas/hydrogen plant. Squadron CEO Stuart Johnson last week said the modelling needed re-examining but that it could still be an attractive investment opportunity.
The federal government’s announcement of a 660MW gas peaker plant at Kurri Kurri just next door to the Upper Hunter was timed perfectly for the weekend state by-election and naturally contributed to the stonking result for the Berejiklian government while dividing Labor on gas.