Closing Liddell power plant to have only short-term effects
Closing Liddell power station would lift NSW wholesale power prices by more than a quarter but the effects would decline as more capacity entered the market, according to a leaked report.
The Liddell Taskforce study, obtained by The Age and The Sydney Morning Herald, assessed how the electricity market would be affected by the shutting of the ailing AGL coal-fired power plant in the Hunter Valley.
The taskforce was set up to gauge the likelihood of a repeat of price shocks similar to those that followed the sudden closure of the Northern plant in South Australia in 2015 and Victoria’s Hazelwood plant two years later.
Despite AGL giving the market about seven years warning about its plans to close the 1680-megawatt Liddell plant, the study’s modelling found wholesale prices in NSW would increase from the low $60 per megawatt-hour in 2022 to between $75 and $80 in 2023-24.
That higher price could persist if investors are not able or willing to build new capacity and other major projects such as the Snowy 2.0 pumped-hydro scheme are delayed. If new capacity arrives, however, prices will ease to an average $71 over the five years to 2027-28.
“The Liddell Taskforce found that the market has not adjusted since AGL first announced their plans for Liddell and history shows that it has market forces that prevent it from adjusting,” said a spokesman for Angus Taylor, the federal Energy and Emissions Reduction Minister.
The surfacing of the report comes on the same day Prime Minister Scott Morrison said his government was prepared to back the construction of a new 1000MW gas-fired power station for the Hunter Valley if AGL did not replace Liddell.
That move surprised many, not least because the likely new gas plant operator would be the Commonwealth-owned Snowy Hydro group, and also because by choosing a place, timing and energy source the government was effectively signalling a major intervention in the markets.
The taskforce report, if anything, downplays the wider effects of closing Liddell, noting that investors would likely respond to the price signals and act.
It noted that a range of committed projects, including those by AGL to add capacity such as giant batteries “would be more than sufficient to maintain a high level of reliability as Liddell exits”, the report found.
Similarly the types of system stability services Liddell now provides such as frequency control would also likely be made up by committed projects, it said.
“Advice from TransGrid suggests there will be sufficient system strength to maintain a secure system when Liddell exits, under normal operations,” it said.
Still, experts such as Bruce Mountain, director of the Victoria Energy Policy Centre, said the taskforce report was written in April and now seems dated given weaker price projections.
“What we can say is that the electricity forward markets are not expecting the prices that this report alludes to,” Dr Mountain said.
“But regardless of whatever one group may or may not think might be future market prices this does not affect what we know to be the least cost investments,” he said. “And the market is very clear, in no uncertain terms, that gas generation is not competitive.”
Dylan McConnell from the University of Melbourne said the reliability concerns were “inconsistent with the latest  electricity statement of opportunities from AEMO (Australian Energy Market Operator) released a month or so ago”.
They suggest that no new capacity is required for NSW to meet the reliability standard until 2029-30 when the next coal plant, Vales Point, is due to exit, Dr McConnell.
NSW Energy and Environment Minister Matt Kean, though, said he supported the Commonwealth’s decision to replace, not extend, the Liddell power station.
“Replacing Liddell is the right decision to protect the reliability of our grid and the safety of the workers at Liddell,” Mr Kean said.
“We need to replace our ageing power plants before they close with the lowest-cost new forms of generation.”