Extract from The Guardian
The Morrison government seized on a recent electricity shortage as a ‘dress rehearsal’ for life without Liddell, but market experts insist there’s more than enough power
Last modified on Sat 22 May 2021 06.42 AEST
Energy experts have rejected Morrison government claims an electricity shortage forced a major aluminium smelter to shut down three times in a week and that building a publicly-owned gas-fired power plant will fix the problem.
The energy and emissions reduction minister, Angus Taylor, this week confirmed taxpayers would pay up to $600m for Snowy Hydro Ltd to build a new 660MW fossil fuel plant at Kurri Kurri, in the Hunter Valley, saying it was needed to help replace the Liddell coal plant when it shuts in 2023.
Taylor said there had been a “dress rehearsal” of life without Liddell over the previous week when major outages at several black coal plants led to the Tomago aluminium smelter – Australia’s biggest electricity user – shutting down three times because there “wasn’t enough power available”.
He said if the smelter had shut for an hour longer “it would never reopen” as potlines would have frozen, a problem that can cost hundreds of millions of dollars to fix. “We have just seen exactly what will happen if we don’t have replacement capacity [for Liddell],” Taylor said.
But energy market experts said Snowy Hydro already owned a large gas plant that sat idle while Tomago was shut down, and there had been enough electricity available to meet all demand on the grid.
Tomago stopped running three times since 12 May, blaming wholesale electricity price spikes, which saw costs skyrocket briefly from about $50 per megawatt hour to between $2,000 and $7,000.
Dylan McConnell, from the University of Melbourne’s Climate and Energy College, said Snowy Hydro could have helped keep prices down by running its 667MW Colongra gas power plant, on the NSW central coast.
He said Snowy Hydro chose not to run Colongra during the price spike periods unless the market reached $15,000 per megawatt hour. McConnell said the company could afford to sell electricity at a fraction of that price – as little as $300 per MWh – and still turn a profit.
Colongra runs at less than 1% of its capacity across the year. The new Kurri Kurri plant is expected to run at just 2% capacity.
McConnell said it undermined government claims that adding another gas plant to its fleet would increase competition and was needed to help Tomago. He said Snowy Hydro’s behaviour was “completely rational for a monopolist, but it’s not good for consumers”.
“If the government’s objective was to keep prices down they could just tell Snowy Hydro to use what they already have, and to bid competitively into the market in a non-profit maximising way.”
Tony Wood, the energy program director with the Grattan Institute, said there had been no power shortage - the Australian Energy Market Operator (Aemo) had not been required to intervene – and Tomago shutting briefly as prices spiked was an example of the electricity market working, not a catastrophe.
But he suggested the competition watchdog would be justified looking into Snowy Hydro’s behaviour if it was creating concern from a trade practices perspective. “I think there’s enough of a whiff here to suggest that might be the case,” Wood said.
Tomago has an electricity contract with AGL that is understood not to apply above a certain price. McConnell said if Tomago wanted to guarantee it would avoid price spikes it could seek another contract with an existing gas generator.
Through a spokesperson, Snowy Hydro suggested it was not responsible for ensuring Tomago had access to affordable power. “Snowy generates to cover its contract portfolio, not AGL’s contract portfolio,” the spokesperson said.
Snowy quoted Aemo as saying it would contribute to “the dispatchable generation capacity needed in the future energy system to keep prices low and power reliable”.
In response to allegations its increasing market share, which includes the Snowy 2.0 pumped hydro development, would reduce competition in the market, it said: “Snowy is providing more supply to the market, and by definition this is not reducing supply or competition, but rather adding to both.”
Tristan Edis, a director with analysts Green Energy Markets, said if the government wanted to increase competition in electricity to keep prices down it would not be giving Snowy Hydro greater market power. He said the government had promised a program to underwrite new gas and pumped hydro generation, but was now using public money to build a gas plant at a site that had no gas pipeline infrastructure.
“There is no coherent plan,” Edis said. “We’ve got to get past these ad hoc interventions.”
Taylor’s spokesperson said the Kurri Kurri gas plant was “exactly what is needed to keep our grid affordable and reliable” and the government could not “risk the future of important manufacturers and job creators like Tomago”.
“They need a secure, reliable and affordable electricity supply to survive,” they said.
“Snowy Hydro plays a critical role in the national electricity market in terms of generation and storage. Since 2016, when AGL first announced they were closing Liddell, the private sector has had the ample opportunity to step up and fill the gap required to keep prices low and the grid reliable. The big energy companies have chosen not to.”
The electricity system is changing rapidly away from a system that ran mostly on coal to being dominated by cheap solar and wind. Coal still provides about two-thirds of electricity in the national grid, but most remaining plants are due to shut over the next 20 years, and analysts believe some are likely to close years earlier than scheduled as renewable energy makes coal less economically unviable.
Climate scientists, and some governments, have called for coal power to be phased out by 2030. A major report by the International Energy Agency this week said there should be no new investments in coal, oil or gas if the world is to live up to the goals of the Paris agreement.
A solar and wind-dominated system will need “dispatchable” back-up from sources that can be called on when required. They could include batteries, pumped hydro, demand management and gas. Aemo found new gas, the only fossil fuel on the list, was likely to be more expensive than other options.
Despite this, the Morrison government determined 1,000MW of new gas power would be needed to keep prices down when Liddell closed, and said it would step in if the private sector did not.
Both Aemo and a government taskforce commissioned to look at what was needed post-Liddell found new generation capacity would not be necessary in 2023 to maintain a reliable supply.
That case has been strengthened by the subsequent announcement of several large batteries, a separate 316MW gas-hydrogen hybrid plant and NSW legislation under which the state will underwrite 2,000MW of storage capacity. Labor has called on the government to release the business case for building a taxpayer-funded gas plant at Kurri Kurri.
Tomago Aluminium’s chief executive, Matt Howell, did not respond to interview requests or emailed questions from Guardian Australia. He told News Corp the Kurri Kurri plant was needed to replace Liddell as saying batteries could do the job was “like saying a bicycle can replace a car”.
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