Is the government’s gas-fired power plant ideal or ideological? Energy experts count the cost.

In electricity generation, much as in politics, timing is everything.

For the New South Wales National Party, the announcement that the Australian Government would fund a new $600 million gas-fired power plant at Kurri Kurri, in the Hunter Valley, just days before a crucial by-election in the adjoining seat of Upper Hunter couldn’t have come at a better time. They ended up holding the seat.

The announcement was equally welcome news for the federal Liberal and National parties, which are eyeing off the Labor-held swing seat of Paterson, which includes Kurri Kurri, and the neighbouring seat of Hunter in the upcoming federal election due in 2022.

But what about the timing for the power grid? Is there a need for a new gas-fired power plant that will outlast both of these fleeting political events? And for the whopping price tag, are there cheaper alternatives out there?

The Kurri Kurri gas-fired power station will be fully owned by the federal government through publicly owned Snowy Hydro Ltd. It will have capacity to pump 660 megawatts of electricity back into the NSW grid in the Hunter region.

The whole Hunter Valley is ideal for power generation, as many of the state’s transmission lines connect there to aging and closing coal-fired power plants, such as the much-discussed Liddell Power Station, which will be offline by 2023.

The government says the new Kurri Kurri plant will operate only during peak surges in electricity demand to reduce power prices, meaning that it could be operational for as little as 2% of the year – the equivalent of one week a year at full capacity.  

Two Australian energy-system experts say that the power station at Kurri Kurri makes little to no sense.

Ariel Liebman, an associate professor and director of the Monash Energy Institute, says that there doesn’t seem to be any economic or scientific, “as in engineering”, basis for it.

“All the numbers show there is going to be an aggressive decline in the cost of batteries and off-river pumped hydro as it gets deployed,” Liebman says. “There might be a few-year window where this sort of plant makes sense economically, but when you look at the economics over years and over its lifetime it’s just a waste of money.

“It is just going to increase emissions and doesn’t improve reliability any more than an alternative.”

Liebman says the investment and its impact on the broader grid would drive up total electricity costs in the long run.

“The investment of gas-fired power would also increase total electricity costs by about $70 million per year with total system costs over the period to 2043 increased by up to $1,011 million,” he says.

“Moreover, this project would reduce the Snowy Hydro net profit by up to $3,380 million over this same period.”

Liebman says the more cost-effective alternatives involved a combination of solar and wind energy projects, either onshore or offshore, combined with batteries to make them dispatchable in times of peak demand. The other alternative, he says, is off-river pumped hydro, which would be highly effective at solving some of the reliability questions posed by Liddell’s impending closure.

“A battery would be able to do the same thing [as Kurri Kurri] – there is no difference. Building a piece of antiquated kit for the benefit of two percent of the time is silly,” Liebman says.

“The other thing is of course the market frameworks are designed to incentivise exactly this type of framework anyway, yet the market is not doing it. None of these signals suggests the market needs this either from an economic or engineering point of view.”

Liebman says the issue standing in the way of the development of more environmentally friendly forms of dispatchable power was the lack of government support and investment, as well as existing market mechanisms which were designed to favour traditional forms of electricity.

“The market isn’t God-given, it’s man-made, [and] now we have a changing technological landscape we need to redesign the market again,” Liebman says.

The Australian Energy Market Operator’s own 2020 Integrated System Plan shows that NSW only needs 154MW of new dispatchable generation by 2023–24 to cover the reliability questions posed by the closing of Liddell and other power stations.

That capacity and more will already be covered by the Tallawarra B gas-hydrogen plant that Energy Australia announced earlier in May it would be building at Lake Illawarra, on the NSW south coast.

That plant will have a 316MW capacity and will be financially supported by the state and federal government to the total tune of $83 million.

Mark Diesendorf, an associate professor of physics and applied mathematics who teaches energy policy and ecological economics at the University of NSW, says once Tallawarra B is operational in late 2023 the business case for Kurri Kurri will make even less sense.

“It’s a complete waste of money; totally unnecessary, purely ideological – even the energy market operator says an additional gas-fired is not needed for any so-called reliability gap,” says Diesendorf. “It certainly won’t deliver cheaper power, as gas is quite expensive.

“What the federal government appears to be doing is making the false impression that gas is cheap by making taxpayers pay for the capital cost of $600 million.”

Diesendorf notes that a 2017 study by the Australian National University highlighted 22,000 sites around the country with suitable conditions for pumped hydro-energy projects producing peak dispatchable energy; many of the sites are in the Hunter Valley.

He says power plants that are only operational in times of peak demand were a really poor return on investment.

If the goal is to reach around 150MW of dispatchable power, the South Australian experience – with the Tesla “big battery” at Hornsdale Power Reserve, about 230 km north of Adelaide, showed much better value for money than the Kurri Kurri plant, even when you ignore the fact that the SA Government paid a premium for the facility to be built in a rush in 2017.

Capable of storing 150MW of energy generated from a nearby wind farm, the battery plant cost around $90 million to build.

Diesendorf says the cost of batteries was coming down significantly and the business case for a similar setup in New South Wales would likely be much stronger than the case for the Kurri Kurri gas-fired plant.

“With batteries you are operating every day so you get a really big return on investment, [and] even though they are expensive they are coming down [in price] a lot,” he says.

Tim Nelson, an associate professor of economics at Griffith University, Queensland, who specialises in energy economics, says the logical substitute for a gas-fired power station was a battery or pumped hydro.

“A lot of it comes down to your prediction around costs,” he says. “If you predict gas prices are going to be really low and battery prices aren’t going to come down as much as people think, then you might go with a gas-fired power station.

“But if you make other assumptions you probably want to invest in batteries or pumped hydro. The biggest issue is whether this is even needed at this moment in time.”