Federal government backing construction of the Hunter Valley Gas Power Plant

Articles Written by Peter Rose (Partner), Cloe Woodward (Associate)

The Federal Government is proposing to build a new gas fired power plant in the Hunter Valley, New South Wales if the private sector fails to “step up” and replace the lost capacity resulting from the closure of the coal fired Liddell Power Station.  The owner of the Liddell Power Station, AGL has outlined its intentions to replace the power station with renewable energy and battery storage. The Prime Minister has however warned that he would not risk the affordability and reliability of the New South Wales energy system, following a finding by the Government’s Liddell taskforce that closing the plant without adequate dispatchable replacement capacity risked prices rising by about 30% over two years, increasing to $80 per MWh in 2024 and $105 by the end of the decade. The private electricity sector has until the end of April 2021 to reach final investment decisions on 1000MW of new dispatchable capacity, with a commitment in place for generation in time for the 2023-2024 summer. However, if by the end of April 2021, the private sector has not met the target, the Government will take necessary steps to ensure the required dispatchable capacity is built. Government-owned Snowy Hydro has been tasked with drawing up plans to build the gas generator if the market fails to fill the gap. 

Energy Minister Angus Taylor said that, “Over the last decade, the private sector has not built a single new reliable power plant in NSW,”…“[a]nd in the five years since the closure of Liddell was first announced, the private sector has only committed to a single dispatchable generation expansion — a 100MW addition to the existing Bayswater plant. This falls far short of what is required.”

The potential for a new gas fired plant comes as the government released its plan to place gas at the centre of Australia’s economic recovery from the COVID-19 pandemic, announcing a suite of measures aimed at preventing forecast shortfalls in dispatchable power and addressing price equity in the East Coast gas market.  These include:

  • Setting up a National Gas Infrastructure Plan worth $10.9 million to identify priority pipelines and critical transport infrastructure for investment in the gas transport network;
  • Setting new gas supply targets with States and Territories and imposing a potential “use-it or lose-it” requirement on gas licences held by companies sitting on undeveloped reserves;
  • Expanding Queensland’s Wallumbilla hub to establish an "Australian Gas Hub" for domestic trade which is modelled on the Henry Hub in Louisiana;
  • Levelling the negotiating playing field for gas producers and consumers by supporting an industry-led, voluntary code of conduct for gas producers and consumers (with the threat of a mandatory code if agreement is not reached by February 2021);
  • Re-negotiating the Heads of Agreement with three major east coast LNG exporters to free up more product for the domestic market at reasonable prices; and
  • Spending $28.3 million on five strategic plans covering the Beetaloo, Northern Bowen and Galilee basin.
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