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Federal Government powers ahead with gas-led recovery

The Australian Government has commissioned a $600 million gas-fired power station in the New South Wales Hunter Valley to fill a 1000 MW gap in generation capacity when the Liddell coal-fired power station closes in two years.

Announcing the go-ahead in May, Prime Minister Scott Morrison said electricity prices could rise by as much as 30% in NSW if the 660 MW open cycle gas turbine didn’t go ahead.

In what is a significant intervention by the Federal Government into the energy market – ordinarily managed by the states – this initiative marks a new development in the provision of energy in Australia.

The government insists that gas is a transition fuel that will support the renewable energy in the system and that without the uplift in capacity this new plant will provide, electricity prices would rise, and the state’s grid would be lacking.

Power shortfall debated

Many in the private sector were not in agreement with the Government, however, arguing that the gap created by the closure of Liddell would be around 200 MW rather than 1000 MW. The Australian Energy Market Operator also leaned into that view, saying that only between 153 MW and 215 MW would be needed.

Others disagree and say the government stepped in where the free market failed to do so and that the new plant will work alongside the 316 MW gas power station EnergyAustralia is building along Lake Illawarra, south of Wollongong.

The Tallawarra B power station will be the country’s first net-zero hybrid plant capable of running on both hydrogen and natural gas and will sit alongside the existing Tallawarra A 435 MW gas plant.

Illawarra hydrogen hub

EnergyAustralia received $83 million from the government towards the power plant expected to be operational by 2023-24 before Liddell closes. Tallawarra is being seen as an essential step towards establishing a hydrogen hub in the Illawarra.

The Tallawarra B plant is the result of an agreement between the private sector and the state and federal governments. Energy Australia plans to offset the plant's carbon emissions over its lifetime through a combination of renewable technologies like green hydrogen and carbon credits. 

Tallawarra will be the first dispatchable power station built in NSW in more than 10 years and will set a new benchmark for gas generators, consistent with the state’s emissions plan to be net zero by 2050.

Impact on pricing

Energy Action believes that the ‘quick start’ nature of the proposed gas-fired power station in the Hunter Valley is likely to assist in ‘’firming’’ the intermittency associated with renewable projects. Should the project go ahead and attract new renewables projects to the Hunter Valley region, it is likely to place downward pressure on electricity prices beyond 2024

Regardless of whether it attracts more renewable projects, the plant is expected to limit price-spikes from supply disruptions and provide greater supply reliability.

At this stage, the announcement of the proposal has had practically no impact on 2024 electricity contract prices. Energy Action remains of the view that customers should be seeking to secure fixed-price supply agreements out to 2024/2025.

For more information about the potential future impact on pricing or any enquiries related to your contract, please contact your account manager on 1300 964 989 or click here.

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