NSW, Canberra finally wake up to grid needs ahead of Liddell coal closure

The NSW and Commonwealth governments have finally woken up to the need for more transmission in Australia’s main grid, announcing a joint contribution of $102 million to ensure that an upgrade to the link between NSW and Queensland is completed before the planned closure of the Liddell coal generator in 2023.

The joint announcement by the Morrison and Berejiklian governments – who have been working on a joint task force to study the Liddell closure – will support and effectively fast-track the planned $175 million upgrade of the link between the two states, rather than waiting for the laborious process of regulatory approval.

The case for new transmission links has been made repeatedly by the Australian Energy Market Operator in its Integrated System Plan that provides a 20-year blueprint for the main grid.

The NSW-Queensland upgrade is just one of a number of projects that AEMO considered most urgent to support the grid as more coal generators retire and more renewables enter the system, the others being a link from South Australia to NSW, an upgrade between Victoria and NSW, and new capacity to reduce congestion in western Victoria.

The proposed upgrade favoured by Transgrid – “up-rating” three lines and installing several capacitor banks – will increase capacity between the two states by 190MW in peak periods, in turn ensuring cheaper supplies can be imported from Queensland, and less gas and storage is needed in NSW to make up for the loss of capacity from Liddell, which will be fully closed by early 2023.

The Morrison government says the decision is all about lowering prices. “This is about putting downward pressure on wholesale prices to make sure businesses and households have access to reliable and affordable power,” Morrison said in his statement.

That is questionable, at least in the short term. According to Transgrid’s own modelling, the “net benefits” of the upgrade will total around $220 million over 20 years in terms of “net present value”. That equates to $11 million a year, or – in the Coalition government’s favoured “per capita” metrics – about $1.50 (one dollar, fifty cents) per person per year in NSW.

However, the upgrade to this link to Queensland, and the proposed new 800MW link to South Australia, will provide more capacity, particularly from renewables, and more competition. Queensland, like NSW, currently sources only 13 per cent of its electricity from renewables now, but this will grow quickly and it has a 50 per cent renewable energy target by 2030.

Over time, the increased competition from Queensland and South Australia – already at 50 per cent wind and solar and aiming for 100 per cent – will result in a lowering of prices in NSW, which have been amongst the highest in the country this year due to its depending on costly black coal generation.

“The QNI upgrade will facilitate greater competition between generators in the electricity market, helping to reduce wholesale prices,” energy minister Angus Taylor says in the joint government statement.

“This is great news for the energy-intensive industries, and the jobs and regional economies that rely on them. With wholesale prices making up around a third of an average retail electricity bill, this will also deliver price relief for households and small businesses.”

At least that is a change from Taylor’s reaction to the recommendation from AEMO that $370 million be spent on upgrades in Victoria, to allow for some $10 billion of new wind and solar capacity and which would deliver twice that amount in market benefits.

“We remain concerned that reckless Victorian state government actions are hurting Victorian, Tasmanian and South Australian energy consumers,” Taylor was quoted as saying in July.

The new approach comes as Taylor comes under increased scrutiny over claims about the Sydney City Council’s travel budget which he now admits to being false. Labor has called for a policy inquiry to see if any documents given to the Daily Telegraph which published Taylor’s claims were forged.

It should be noted that Transgrid was quite specific about where the market benefits would come from – more wind and solar from Queensland – and lower fuel costs from fossil fuel generators, and less chance of “load shedding”.

“The new link will trigger “further reductions in total dispatch costs, by enabling low cost renewable generation to displace higher cost conventional generation…,”  it said.

“…. And reduced generation investment costs, resulting from more efficient diversified investment and retirement decisions, due to high quality wind, solar and pumped-hydro generation being able to locate at optimal locations rather than inferior locations limited by congestion on the existing transmission system.”

The new link – which is now targeting a completion date of late 2021, a year earlier than previously planned – means there should now be no impediment to the closure of Liddell, which will see one unit closed in 2022 and the remaining in early 2023 after staying online for one more summer.

This and the other new links will likely also make it easier to close Vales Point (2028/29) and Eraring (2032) over the medium term.

According to a presentation made by Transgrid to stakeholders just last Friday, the benefits from the new link – favoured narrowly from a rival proposal to install two big batteries at either end of the line – will mean less investment will be needed in new gas generators, pumped hydro and battery storage.

The biggest change is in the amount of peaking gas plants needed. Under Transgrid’s neutral scenario, 513MW of new gas capacity would have been needed, and less under the “low emissions” and “fast change scenarios”. The amount of gas capacity is reduced in all three scenarios, and for solar and  pumped hydro in the low emissions scenario, although “fast change” sees more solar being built.

It was ironic, however, that Morrison should be using the announcement to plug the case for “investment certainty”, given that every decision his government has taken, or not taken, has had the opposite effect in the market.

This includes the lack of a coherent energy policy, the lack of an emissions reduction policy, and the other interventions into the market, including its own underwriting scheme. Until now, it has paid little attention to AEMO’s Integrated System Plan.

“Industry needs certainty,” Morrison said in his statement. “They need to know their electricity won’t cut out, and their power bill won’t suddenly double. You can’t run a business like that, and you can’t employ people.

“That’s why we are underwriting this interconnector. It’s a practical step to make sure it happens, and it happens quickly.”

Given that, it should be hoped that the federal government now turns its attention to the South Australia link, and the much-needed upgrades from NSW to Victoria, with or without the government’s pet project, the Snowy 2.0 pumped hydro scheme.

The South Australia interconnector in particular will result in a huge influx of renewable energy capacity as that state’s Liberal government pursues its aim of “net 100 per cent renewables” by the end of the decade, and to become a significant exporter of cheap and clean renewable electricity.

At least half a dozen major solar, wind and storage projects are queuing up to join the grid on the South Australia end of the proposed link, and more solar and storage projects are expected to jump on the NSW end of the link once the investment gets the go-ahead.