AGL, Australia’s biggest coal generator, says it has reached a final investment decision on a new 220 megawatt (MW) peaking plant that will just about pay for itself without ever being switched on.
The new dual-fuel peaking plant, capable of burning both gas and diesel, is known as K2 and will be built next to the existing Kwinana Swift facility in Western Australia.
AGL struck a deal with Siemens last October for the purchase of four new turbines for a total of $185 million, and the total cost of the project is expected to be around $490 million, including construction, connection and other costs.
But a large part of this will be recouped via the state’s capacity mechanism, with allocates peak certified reserve capacity credits at a price of $360,700. The scheme is designed to ensure there is enough capacity on the grid when it is needed.
AGL has secured credits for 176 MW of capacity at K2 for a period of 10 years from October next year, which means that it will receive annual payments of $63.48 million (or total of $635 million, increasing with inflation over 10 years), just for being there.
Of course, AGL will also incur financing costs but it means that – even if it wasn’t switched on (and some diesel peaking plants in Western Australia never have been switched on), it would get its money back on the 25-year asset within eight years.
AGL in the eastern states has been focusing on building up battery storage, including at Liddell and Tomago, where it has a combined 500 MW and 3,000 MWh under construction and in commissioning, adding to existing batteries at Torrens Island and Broken Hill, and a number of other projects in development.
AGL says the K2 peaking plant should be finished by the end of 2027, and have an asset life of 25 years. It expects to earn a post post tax, ungeared, project return of above 8%, in line with AGL’s previously stated target range of 7-11% for firming projects.
AGL managing director and CEO Damien Nicks says reaching FID on the K2 Project follows its recent signing of a 15-year PPA with Tilt Renewable’s Waddi wind project in Western Australian for 105 MW.
“(It) bolsters AGL’s portfolio in Western Australia and provides further opportunity to continue to scale our Perth Energy business and further diversify our earnings outside the NEM,” Nicks said in a statement.
“It marks another important milestone in AGL’s strategy to develop new firming capacity to support the build out of renewables, and further expands the breadth and capacity of the company’s flexible asset portfolio.”
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