The gas-led revolution NSW never had

It never rains, it pours. Suddenly, it seems, everyone is building a new gas-fired electricity generator in NSW. The questions are many: will they function as advertised (hydrogen), are they all needed (Kurri Kurri) and will any of them actually make a commercial return?

In a triumph of the virtues of persistence, Energy Australia has finally announced it is going ahead with its 316MW Tallawarra B power station on the banks of Lake Illawarra on the outskirts of Woolongong.

The project was first proposed in 2009 and approved in 2010. Since then it has constantly been before the EA Board for approval, only to be deferred because of some extraneous energy or policy announcement outside EnergyAustralia’s control. Multiple announcements on Snowy 2.0, the return of central planning via the NSW Electricity Infrastructure Roadmap, that sort of thing. Tallawarra B has been to more EnergyAustralia Board meetings than most Board members.

In uncertain times, the power station finally got a hefty leg-up courtesy of the NSW taxpayers ($78 million) and the Federal Government ($5 million), offsetting more than a quarter of the $300 million capital cost.

It secured the funding by clever negotiating by outgoing CEO Cath Tanna and more than a little greenwashing: the power station is being pitched as co-firing with hydrogen, even through there appears to be no hydrogen supply or large scale storage at the site. It will offset its emissions, although to remain cost competitive it may be challenging for EA to buy credible, high quality offsets, particularly in a soft, oversupplied electricity market. EnergyAustralia will also “offer to buy” small amounts of hydrogen and presumably publicise any purchase whenever the token hydrogen tanker turns up.

This announcement really reinforces the commercial reality that government subsidies are now a pre-requisite for all new generation-related investments in Australia.

Not to be outdone, the Morrison Government appears determined to soldier on with its plans for another large gas power station at Kurri Kurri just down the road from Newcastle, the site of a former aluminium smelter and the Big Kookaburra.

The Australian Energy Market Operator (AEMO) has already advised there should be sufficient electricity after Liddell closes in 2023, or, more specifically, that NSW should be able to operate inside the reliability standard. But that advice hasn’t convinced the Federal Government. That may be because the next most vulnerable coal generator in the state is the 1320MW Vales Point, which has no retail customers and has already earned its owners a motza since being bought for only $1 million in 2015. With chronically low wholesale electricity prices it may close much earlier than the forecast 2028-29.

The Federal Government has previously threatened to get Snowy Hydro to build 1000MW of new gas generation in Kurri Kurri in a veiled threat to private companies to push on with new replacement generation, even though making this threat had the opposite effect. Not dissuaded from its bullying approach to energy policy, it now is reportedly setting aside some cash in this year’s budget to get the job done.

Meanwhile up the road Twiggy Forrest’s Squadron Energy has been talking a big game on building a gas import terminal at Port Kembla, although it’s still in the spruiking for customers and government cash stage of energy project development. Squadron Energy’s talk of building a 660MW gas peaker at Port Kembla was a way of securing demand for the gas import terminal. It’s a reasonable guess that EnergyAustralia will have already been approached by Squadron to secure supply contracts if the terminal proceeds. Certainly the Tallawarra B announcement makes Twiggy’s gas generator, not even at the planning approval stage, seem less commercially likely.

Meanwhile AGL has gone quiet on its proposed 250MW gas peaker at Tomago near Newcastle, but then, they might have been a bit distracted recently. The commercial close on this, like Squadron’s Port Kembla project, gets harder with the Tallawarra B announcement.

Next week we will see what the Budget has in store for Kurri Kurri. Jemena is currently exploring the feasibility of extending the eastern gas pipeline to the Hunter Valley, passing curiously just by the Kurri Kurri site. Its go-ahead will depend on whether the threat is still turned into reality.