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Morrison government threatens to use Snowy Hydro to build gas generator, as it outlines ‘gas-fired recovery’ plan

Written by Michelle Grattan, Professorial Fellow, University of Canberra


The Morrison government has threatened to use Snowy Hydro to build a gas generator in the Hunter Valley if the electricity sector fails to fill the gap left by the scheduled closure of the Liddell power plant in 2023.

The threat comes as the government separately released its plan to place gas at the centre of Australia’s economic recovery, with a package of measures to “reset” the east coast market and “unlock” supply.

Scott Morrison and Energy Minister Angus Taylor said the electricity sector had to deliver 1,000 megawatts of new dispatchable energy to replace the Liddell power station before it closed.

“The Government will step up and back a new gas power plant in the Hunter Valley if the sector doesn’t replace Liddell’s capacity,” they said in an ultimatum to the sector.

“Snowy Hydro Limited is developing options to build a gas generator in the Hunter Valley at Kurri Kurri should the market not deliver what consumers need.”

The government had a long running battle with AGL over its determination to close Liddell, trying unsuccessfully to force it to abandon the decision.

Morrison and Taylor said the government’s Liddell taskforce had found closing the plant without adequate dispatchable replacement capacity could mean a 30% price rise over two years, or $20 per megawatt hour to $80 in 2024 and up to $105 per MWH by 2030.

Morrison said such rises were unacceptable – they would be a huge hit to families, businesses and job creating industries in NSW if the energy generated by Liddell wasn’t replaced.

“We won’t risk the affordability and reliability of the NSW energy system and will step in unless the industry steps up.

“To ensure we do not have a scenario without replacement, the government is giving the private sector until the end of April 2021 to reach final investment decisions on 1000 MW of dispatchable capacity, with a commitment for generation in time for summer 2023-24.”

In its announcement of its gas plan, the government says its proposed multiple initiatives will deliver affordable and reliable energy for households, business and industry, and shore up the energy grid’s reliability as renewables form an increasingly larger part of the energy market.

One part of the plan is the creation of an Australian Gas Hub at Wallumbilla in Queensland to bring users and suppliers closer together, delivering a transparent liquid gas trading system.

This is modelled on the Henry Hub located in Louisiana which is a distribution point on a natural gas pipeline system. It serves as the official delivery location for futures contracts.

The concept of a gas-led recovery is highly controversial. It has been strongly pushed by the chair of the government’s national COVID-19 commission Nev Power, and the government argues that gas is much lower in emissions than coal fired power.

But the promotion of gas is resisted by environmentalists, given it is a fossil fuel, and questioned by some in the investment community who doubt it will be possible to achieve gas prices low enough to make a major economic difference.

Announcing the “gas-fired recovery” plan Morrison, Taylor and Resources Minister Keith Pitt said: “The government wants the private sector to step-up and make timely investments in the gas market.”

But “if the private sector fails to act, the government will step in – as it has done for electricity transmission – to back these nation building projects. This may include through streamlining approvals, underwriting projects or the establishment of a special purpose vehicle with a capped government contribution”.

The government says the east coast market needs change because it is not delivering internationally competitive prices for Australian businesses and households.

International prices have fallen but this has not been reflected in lower long term contract offers for Australian customers.
There are also fears of a supply shortfall in the medium term.

Under the measures, new gas supply targets will be set with states and territories and a potential “use it or lose it” requirement will be enforced on gas licences.

The government aims to unlock five new gas basins beginning with the Beetaloo Basin in the Northern Territory and the North Bowen and Galilee Basis in Queensland. This will cost $28.3 million for the plans.

To avoid supply shortfalls, there will be new agreements with the three east coast LNG exporters with strengthened commitments on price.

The government will also “explore options” for a prospective gas reservation scheme “to ensure Australian gas users get the energy they need at a reasonable price”.

To improve the gas transport network the government will identify priority pipelines and critical infrastructure for a National Gas Infrastructure Plan (NGIP) worth $10.9 million . This will also highlight where the government will step in if private investors do not.

The regulations on pipeline infrastructure will be reformed to increase competition and transparency; competition will be further promoted by kick starting work on a secondary pipeline capacity market.

The government will work with the Australian Competition and Consumer Commission to review the calculation of the LNG netback price which provides a guide on the export parity prices.

It will also use the NGIP to develop customer hubs to boost competition and transparency for customers.

HERE ARE THE GOVERNMENT’S DETAILED MEASURES.

It will get more gas into the market by:

  • Setting new gas supply targets with states and territories and enforce potential “use-it or lose-it” requirements on gas licenses

  • Unlocking five key gas basins starting with the Beetaloo Basin in the NT and the North Bowen and Galilee Basin in Queensland, at a cost of $28.3 million for the plans

  • Avoiding any supply shortfall in the gas market with new agreements with the three east coast LNG exporters that will also strengthen price commitments

  • Supporting CSIRO’s Gas Industry Social and Environmental Research Alliance with $13.7 million

  • Exploring options for a prospective gas reservation scheme to ensure Australian gas users get the energy they need at a reasonable price.

It will boost the gas transport network by:

  • Identifying priority pipelines and critical infrastructure as part of an inaugural National Gas Infrastructure Plan (NGIP) worth $10.9 million that will also highlight where the government will step in if the private sector doesn’t invest

  • Reforming the regulations on pipeline infrastructure to promote competition and transparency

  • Improving pipeline access and competition by kick-starting work on a dynamic secondary pipeline capacity market.

To better empower gas consumers, it will:

  • Establish an Australian Gas Hub at our most strategically located and connected gas trading hub at Wallumbilla in Queensland to deliver an open, transparent and liquid gas trading system

  • Level the negotiating playing field for gas producers and consumers through a voluntary industry-led code of conduct, to be delivered by February 2021

  • Ensure Australians are paying the right price for their gas by working with the ACCC to review the calculation of the LNG netback price which provides a guide on the export parity prices

  • Use the NGIP to develop customer hubs or a book-build program that will give gas customers a more transparent and competitive process for meeting their needs.

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