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Origin gas deal brings mothballed Pelican Point back online

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The South Australian gas power generator that might have, but did not, come to the rescue of South Australian homes and businesses during black-outs earlier this month, will be returned to its full capacity, off the back of a deal between the plant’s owner Engie and Origin Energy.

French-owned Engie announced on Wednesday – just as its Victorian coal generator, Hazelwood, was being switched off, for good – that Pelican Point’s mothballed 240MW second unit would return to operation from July, taking the plant to its full capacity of 479MW.

pelican point gas

As we have reported, the Pelican Point gas generator, a relative newcomer to the NEM that was built 17 years ago, was mothballed because its owners saw bigger profits selling gas into the export market.

One unit was switched back on last July, in response to pleas from the South Australian government, but the second unit had remained on ice – even during this summer’s supply crises – with Engie claiming it couldn’t find any gas to buy.

Now, however, Pelican Point’s re-boot, which will include a $40 million upgrade of the facility, will be underpinned by a three-year power off-take deal with Origin, which will see Origin provide gas to Engie in return for access to 240MW of fixed-price electricity, which will be used to supply its South Australian customers.

The deal is well timed, coming two weeks after the South Australian government’s announcement of a $500 million energy security scheme, including a tender for 100MW of grid-scale battery storage and a new 250MW government-owned gas-fired generator to act as an emergency back-up.

That energy plan also included a proposed Energy Security Target, which will require all retailers to source at least 36 per cent of their demand needs by local “dispatchable” generation, rising to 50 per cent by 2025.

An Origin spokesperson told RenewEconomy the company was “seizing the current opportunity” to bolster energy security in the state, by providing another 240MW of “firm capacity” to existing customers, while also growing Origin’s market share in South Australia.

Currently, the company services around 185,000 electricity customers in South Australia, a retail load that Origin says is more than covered by its generation, from assets including the Osborne gas power station (180 MW); the Quarantine gas-fired plant (224 MW); the Ladbroke Grove Power Station, also gas (80 MW); and renewable PPAs of 732MW (predominantly wind in both VIC and SA).

“The power outages in South Australia reinforce the need for sufficient gas-fired power generation to be readily available, especially when wind and solar energy is not available,” Origin CEO Frank Calabria said in a company statement on Wednesday.

“Energy security is critical to our customers and the state. These agreements are examples of immediate steps industry is taking to safeguard electricity supply and make sure more natural gas will be available to meet the needs of customers.”

Elsewhere in the state, Origin has also recently sealed a power purchase agreement with the 220 MW Bungala solar farm in Port Augusta – a project that Calabria says will also play an important role in underpinning state system security.

“Right now there’s a national need for the industry and government to work together to make sensible – and swift – decisions to provide energy security, for the benefit of all Australians,” he said.

“To do this, we need to give some certainty to investment, so we can achieve the equally important objectives of making energy affordable, and moving Australia towards a cleaner supply.

“It’s really important to understand our energy market is in transition as are energy markets around the world.

“If industry and government work together, we believe we can restore the balance between energy security, affordability and sustainability in Australia.

But what the Engie-Origin gas deal means for the Weatherill government’s newly announced plans to build its own gas peaking plant remains to be seen.

Some renewable energy advocates are claiming it as a win for solar thermal generation, as an alternative to building new fossil fuel generation.

“Premier Weatherill must seal the deal for a clean, reliable South Australian power supply by using his government’s power purchase to make solar thermal with storage happen in Port Augusta, not another new gas plant,” said Repower Port Augusta campaigner, Dan Spencer.

“We know the government is currently considering solar thermal or new gas and today’s announcement by Pelican Point means the Premier must rule out propping up another gas plant and back solar thermal,” he said.

“The Premier can ensure new competition and cleaner energy for South Australia by providing a clean on-demand competitor to South Australia’s gas plants that isn’t linked to skyrocketing gas prices.

“Building a solar thermal plant will create new jobs for Port Augusta, new manufacturing opportunities for SA with former car industry suppliers already involved in making solar thermal mirrors for export, reduce pollution and give new secure generation from the sun day or night. You won’t get those benefits with another gas plant.”  

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  • BushAxe

    And funnily enough PP ran at near full capacity (450MW) for over 24 hrs from about 8am yesterday, didn’t take them long to put it back in service!

    • Steve

      I don’t see anything suspicious here. Engie planned the shutdown of Hazelwood and I reckon had bought the gas to run it in the futures market months ago.

      So now the most polluting generator in the world is switched off and in part replaced by a far less polluting gas plant. SA is currently getting quotes on battery backup and implementing other promises.

      With luck more pumped storage in the Snowy Mts in a few years. Things looking up.

      • Ian Mclaughlin

        In general I agree with your comments BUT the forecast for the Snowy Scheme is that water will become more scarce with Climate Change. You cannot pump the same water for ever it evaporates and the LNP are already under attack from farmers that need the water.

        • Rod

          Floating PV on the various reservoirs would reduce evaporation and could help with pumping.
          I wonder if that would fly with the LNP?

          • Ian Mclaughlin

            Apparently that works well over canals in India and has the advantage of cooling the panels to produce more electricity!

          • Rod

            Yes, we have one here in Jamestown SA that seems to be meeting expectations.

          • Ian Mclaughlin

            Oh yes I had forgotten about that.

          • solarguy

            Only money flies with those bastards Ian!

        • Gary Rowbottom

          I guess all that is why a thorough feasibility study needs to be done. Would be interesting to see the utilisation for the 3 existing pumped hydro facilities in Australia. If we haven’t been using them to the max, given their supposed attractions and no emissions (though of course for every MWh out of them you are using say 1.2 MWh of I guess the NEM average emissions intensity of I think 820 kg CO2 e/MWh. So I guess at the moment using those 3 facilities doesn’t help the emissions situation really. Seemed a good idea to start writing this, not so sure now!

          • David Osmond

            Pumped hydro should work by pumping when prices are low, and generating when prices are high. Historically, prices have been low during the night, when most generation is from coal. So pumped hydro has helped coal. Going forward, prices will be low when renewable generation is very high – just look at the situation in SA. So going forward, pumped hydro will help renewables (but also coal).

      • solarguy

        Don’t so hasty to believe their story Steve!

    • Rod

      I had a look at the spot yesterday and they were doing very well thank you.

  • MrMauricio

    Well,well,well-isnt it amazing what a bit of government intervention in a fully private market operating solely for shareholders can do.!!!

  • solarguy

    But can we trust the bastards. The best predictor of future performance is past performance!
    Scam ?

    • humanitarian solar

      Still better than SA spending $350million on new gas turbines, although we’re waiting to see if democracy effectively brings in the 5 minute rule, as a result of parliament agreeing to it. At least with Pelican Point there providing some “firm capacity”, it gives time for the democratic process to translate to the needed rule changes by the AEMC or politicians need to start kicking AEMC butt and reshaping the platform upon which they operate.

  • Ian

    PP#2 is up for a major overhaul, with the turbine and boiler nearing end of hours, hence the $40m spend for a turbine replacement and maybe a major boiler inspection. I reckon PP#1 must also be close to being out of hours too. I’d expect that PP#1 to be operational until the end of summer when it is “mothballed” (aka shut down until required for peaking). The gas for operation would then be on-sold to the likes of Santos when the unit is not operational.

    The question will be whether Jay and Turbo spend our money on new gas turbines or not. $350m would go a long way to that solar thermal plant at Pt Augusta. My calcs would indicate that a 200MW solar thermal plant with 8-12hrs backup could be approximately $350m. No battery required.

    • Jon

      110MW solar thermal with 8hrs storage is $650m!

  • trackdaze

    Won’t be long until SA will be a net exporter across the interconnector.

    • that was always the fear of the Latrobe valley generators, which is why they lobbied so hard against increasing the size of the link.

      • Greg Hudson

        I can see it happening (SA exporting power to Vic) no matter what the remaining polluters in the Latrobe Valley think. Their days are numbered…

  • Gary Rowbottom

    For the case of Solar thermal, what the project proponents are looking for is not State government grants/funding, it is to have the government be the long term power user as per its tender, preferably for 20 years rather than the 10 year min the Government had asked for. Factored into the bid price the project proponents tendered was a certain amount of promised Federal support thorough some sort of grant or more likely loan from some combination of ARENA/CEFC/CEIF. Those two things allow the bulk of the finance to be obtained from the private sector at a reasonable rate (estimated on solid advice) so that the project proponents could establish the long term bid price they have offered. Of course CST offers all the security & FCAS features, plus establishes the additional point of supply that Port Augusta offered for 62 years, additional generation with storage (total 500 GWh year), arbitrage considerations not required. Plus ready to go, as near as it can be, to start the 30 month construction period. Of course the price tendered for the power supplied is not known to me as appropriate with tender protocols, but I understand it is competitive. Of course with the SA Energy Security Target, the project would qualify for that too, so I would think, whatever price was bid, could be lowered due to the as yet undefined value to come from that scheme. The factor that slips a little through the cracks is the economic value to Australia from the jobs created. The project proposed by Solar Reserve entails 4000 direct indirect and induced jobs (peaking at approx. 1000 on site) for the construction phase and 50 ongoing jobs for a conservative 25 years. A figure of 60% Australian content has been indicated. Now even a first year economics student should be able to work out what that means to Australia’s economy in $ terms, and that should be part of the analysis of the tender. I don’t know any first year uni economics students, so my plan is to ask the SA Dept for State Development to help out with that. I will let you know how I go. The Solastor project has a bit lower construction jobs estimated, but more ongoing, and more energy delivery, so the numbers are a little different for that.

  • Ray Miller

    I hope AEMO gives them the third degree about their settings and require the same as of all new generations? No special treatment!