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NSW power projects embroiled in political wrangle

Plans by AGL Energy and EnergyAustralia for new gas-fired power stations in NSW are hanging by a thread amid behind-the-door debate between the state and federal governments on potential support measures from which they are currently excluded.

AGL’s proposed 250-megawatt gas peaking plant north of Newcastle and EnergyAustralia’s Tallawarra B project on the NSW South Coast were both put on hold after the surprise release in October of the NSW government’s energy infrastructure road map, which will change the market dynamics for new generation projects.

The road map, which passed into legislation in December, will provide long-term support for new dispatchable generation projects, but projects such as AGL’s and EnergyAustralia’s, which were already in advanced planning, can only compete for underwriting if the state’s target for energy security is breached.

The two companies then took time to reassess their investments, together worth about $600 million, given they would potentially be at a disadvantage compared with new projects that were covered by the framework.

But the further delay in the two projects prompted Prime Minister Scott Morrison’s move in September to call for at least 1000 megawatts of dispatchable capacity to be committed to by April 2021, or else federal government-owned Snowy Hydro would build a huge gas-fired plant in the Hunter Valley. The proposed new Snowy Hydro plant at Kurri Kurri, intended to help offset the shutdown of AGL’s Liddell coal plant in 2023, has sparked concerns about oversupply.

Mr Taylor is understood to have put it to Matt Kean, energy minister for the Berejiklian Liberal government, that the NSW scheme be expanded to cover the AGL and EnergyAustralia plants. But Mr Kean is pushing back and suggesting the federal government instead widen its Underwriting New Generation Investments program to include them.

However, under a recommendation from the competition regulator, the controversial UNGI scheme is designed to support new entrants in generation, rather than existing major suppliers.

“The federal government has their UNGI program to support new generation, which currently excludes Tallawarra B and the Newcastle Gas Peaker, and if the federal government wants to see those projects proceed, the UNGI guidelines should be amended to allow them to participate,” Mr Kean told The Australian Financial Review.

He said it would be “entirely inappropriate” for either him or the federal government to interfere with the independence of the consumer trustee, the body set up in the NSW road map to run competitive processes for future generation contracts in the state.

A spokesman for Federal Energy Minister Angus Taylor said, “These projects have stalled since the release of the NSW government’s road map, and it is Minister Kean’s responsibility to fix the real problems the policy has created.

“Households and businesses in NSW can’t afford energy policies that put at risk the investments that are needed to keep energy prices low and the lights on.”

The political wrangling comes as wholesale power prices have hit six-year lows in the National Electricity Market amid soaring wind and solar generation and softer demand, driving AGL into a heavy bottom line loss in the December half. Gas power plants are also up against stiff competition from grid-scale batteries, with an unprecedented 2.4 gigawatts of battery capacity having been committed by the private sector in NSW since the road map was announced.

Speaking to investors last week, AGL chief executive Brett Redman made no mention of the proposed Tomago project, focusing comments on new investments in batteries and the Crib Point LNG import project in Victoria.

But Mr Redman said in an interview the Tomago plant is “shovel-ready” and able to proceed, pending the details of the NSW road map and discussions with governments.

“It’s a good positive dialogue with both state and federal governments,” Mr Redman said.

”There is a project there that is capable of being built. From our point of view, we are waiting to see how the market is evolving in NSW for us to make a commercial assessment of it.“

Asked whether he supported the broadening of the NSW scheme to include Tomago, Mr Redman said AGL is “open and responsive to any scheme or possibility that government might put to us”.

“But equally we are not calling on government to do anything,” he said.

“Any engagement from government that supported a project obviously would make it easier to get over [commercial] hurdles.”

EnergyAustralia’s head of generation, Liz Westcott, made it clear her company is also in close talks with governments on Tallawarra B, which she described as the most advanced gas project in NSW and “the only one that can be ready in 2023 to help fill the gap left when [AGL’s] Liddell power station closes”.

The project would deliver 300-400 megawatts of gas peaking power and cost about $300 million.

“A big part of our planning for the project involves engaging with many stakeholders, including the state and federal government,” Ms Westcott said

She reiterated that Energy Australia expects to decide whether to build Tallawarra B by the end of March, signalling the company will not wait for the full detail of the NSW road map regulations to make a call on the project.

“Our final decision to proceed will be based on a range of factors, including market requirements, suitability of technology, value for money and timely construction,” Ms Westcott said.

Source: Financial Review