A new report by energy industry analyst RepuTex says investing to extend the life of the ageing Liddell coal plant would likely result in higher costs than a new large scale solar project with battery storage.
The analysis confirms estimates by the plant owner AGL Energy, which wants to replace Liddell with its own “big battery” and large investments in wind and solar and some gas generation.
The conclusions of the report also underlines why there is such disbelief within the energy industry around why the Coalition could possible argue that extending the life of the ageing and decrepit plant would bring prices down or improve reliability.
“NSW coal is no longer the cheap source of electricity that some remember”, said RepuTex head of research, Bret Harper.
“The fuel cost of coal-fired electricity in NSW has grown to over $60 per MWh, while the long-run cost of recovering any new investment in Liddell could be well over $100-120 per MWh, depending on how often it runs”, he said.
“At those prices, even without valuing a carbon price, the levelized cost of energy is around the same as large-scale solar with storage – like lithium-ion batteries or solar thermal – which could provide similar dispatchable capacity for $80-120 per MWh for the hours when it’s most critical”.
RepuTex also says that extending the operation of Liddell is likely to have a detrimental effect on planned wind and solar investment (which may well be the prime motivation of prime minister Malcolm Turnbull and energy minister Josh Frydenberg).
In turn, Reputex says, the lack of new wind and solar capacity will make NSW increasingly dependent on more expensive gas – leading to higher wholesale prices.
“Directing Liddell to continue to operate could increase uncertainty for strategic investment in renewable projects that would otherwise be likely to go ahead,” Harper says.
“Around 4,000 MW of new generation is already in the advanced stages of development, but has not yet made a final investment decision”. It said this result result in a decrease of about 6,000,000MWh of low-cost renewable energy from the BAU case.
A possible compromise to continuing to operate Liddell as a ‘baseload’ facility may be the mothballing of the plant during seasons when output may be displaced by lower-cost generation, with the plant brought back online back if supply shortages loom, for example, during the hot summer season or when other units are offline.
But Reputex says such a “reserve” model could mean an even higher cost per unit of electricity produced, especially if a business is trying recover the $900 million in refurbishment costs on a plant they may be available only part of the year.
“In such a scenario, we estimate the long-run marginal cost would increase from at least $102/ MWh to $126/MWh if annual output had to be cut from 8,000 to 4,000 GWh.
“At those prices the project would run up into competition from solar thermal, firmed wind, gas and firmed solar, which could all provide greater flexibility over a longer horizon.”
Worse, because of AEMO rules on ensuring sufficient back-up, such as move would still require higher investment in open cycle-gas turbines occurs to ensure sufficient back-up. These plants are bid in at the maximum price levels and earn sufficient revenues to cover their variable and fixed costs.
“In directing Liddell to stay in operation, capacity is therefore maintained in theory, however in reality the system will continue to be reliant on (more expensive) coal- fired generation, backed up by expensive gas capacity to manage the continued risk of unexpected disruptions.”