Snowy Hydro gas plant inks 30-year pipeline deal with APA
Snowy Hydro has signed a 30-year pipeline and storage deal for its gas plant near Newcastle in NSW, as it looks to bring first supplies into the market by late 2023.
Snowy Hydro has signed a 30-year pipeline and storage deal for its gas plant near Newcastle in NSW, as it looks to bring first supplies into the market by late 2023, offsetting the closure of AGL Energy’s Liddell coal plant.
The publicly owned player, also developing a major expansion of its Snowy hydro scheme, said APA Group will construct, own and operate the Hunter Power Project’s gas connection to the Sydney-Newcastle pipeline with an option to extend the long-term deal by a further decade.
APA has a $264m budget for the 20km pipeline and a 70 terajoule gas storage facility, in addition to Snowy’s $610m budget for building the 660 megawatt project. The scheme aims to boost intermittent solar and wind supplies and fill in a gap once Liddell exits in the 2022-23 summer.
“Along with Snowy 2.0, which is Australia’s largest committed renewable energy project, the Hunter Power Project will underpin thousands of megawatts of new wind and solar plants,” Snowy chief executive Paul Broad said. “The Hunter Power Project will be good for prices, by filling the gap in electricity demand and offsetting potential cost increases resulting from the closure of the Liddell Power Station.”
Its critics have railed against the facility, concerned at commonwealth intervention in energy markets, questions over its commercial viability given it may only run for 2 per cent of the time and debate over the size of a supply gap once Liddell closes.
However, Snowy argues the gas plant can cover renewable “droughts” and turn a profit when coal plants close, providing an insurance policy for the market.
The $264m pipeline and storage budget is subject to detailed engineering design work being completed by late 2022 with the pipeline planning the capability to run on 15 per cent hydrogen once up and running.
“The current energy crisis has underscored the critical role that gas will continue to play in our energy mix, delivering affordable firming for renewable generation, energy security and high heat capability for the industrial sector,” APA chief executive Rob Wheals said.
Sending first gas into the grid by late 2023 is also expected to see Snowy be the first to market ahead of a rival gas plant being planned by billionaire Andrew Forrest in NSW’s Port Kembla, which was backed by the former Morrison government through $30m in budget funding.
Snowy expects an internal rate of return of 12.3 per cent under its base case scenario for the gas plant, factoring in transmission synergies and capacity deals that provide buyers with hedges against volatile electricity prices. The lowest return expected would be 8.3 per cent, depending on market pricing and the potential for any cost overrun in building the project.
Separately, APA has sold its Orbost gas plant in Victoria to Cooper Energy for between $270m to $330m, with the range reflecting a series of payments dependent on its performance.
Cooper announced a $244m equity offering split between a $84m placement to institutional investors and a 2-for-5 entitlement offer. It inked a fully underwritten $400m revolving debt facility and $20m working capital facility to refinance existing syndicated debt facilities.
The Orbost plant has been plagued by start-up issues which meant the facility was producing at rates a third below its target of 68 terajoules a day and is now averaging 55TJs a day following upgrade works in March and April.
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