Liddell extension would push up power prices, analysts' report says
The government’s proposed extension of Liddell power station would push up power prices, with its proposed investment in the “Snowy 2.0” pumped hydro project only partially offsetting the extra costs, analysts have said. .
If the government did nothing, electricity prices would remain elevated and be heavily influenced by the price of gas, according to a report by energy analysis firm RepuTex into the government’s two main initiatives to tackle the energy crisis.
However, state-based energy policies that are incentivising 13GW of rooftop solar and 5GW of large scale renewables, would put some downward pressure on prices, it said.
If Liddell were forced to stay open at the cost of $900m, that energy would not be cheap. In addition, it would likely jeopardise 4000MW of renewable energy that is poised to enter the market. With reduced competition from renewables, there would be increased reliance on gas, which would see prices rise, the report found.
“Modelling this scenario suggests average wholesale prices will grow above $100 per MWh with Liddell in play instead of low-cost renewables”, said Ben Harper, head of research at RepuTex.
But if Snowy 2.0 went ahead, RepuTex found Liddell would likely operate at a lower capacity, offsetting the impact it would have on renewables investment, leaving only 1000MW of likely renewables projects in jeopardy.
“With Snowy 2.0 in the mix, modelling indicates less dependence on gas in NSW, with wholesale prices falling towards $80 per MWh, while greater firm capacity in the system would allow aging facilities to close with less impact on reliability”, Harper said.
Overall, with gas prices likely to remain high, the report concluded that pumped hydro was likely to replace gas as the “transition fuel” and help the economy move away from fossil fuels towards renewables.
“The outlook for gas to play a larger role in the energy mix is therefore dimming,” the RepuTex report noted. “While gas-fired capacity still has a role to play in providing available capacity, even this role is likely to eventually be eclipsed by energy storage and demand- side technologies.”
“Should gas prices come down, this could lower electricity prices while tipping the scales toward gas, however, rising gas prices – and the subsequent increase in electricity prices - is already accelerating the search for alternatives.”
Harper said gas didn’t look like a good bet. “Given the current domestic gas price outlook, it would be brave to bet that gas investment will out-compete pumped hydro as the primary transition fuel in Australia”, he said.