Officials contradict Morrison on Liddell shortfall, as government blames the market

Department officials have told Senate estimates that they did not advise the prime minister Scott Morrison or energy minister Angus Taylor on a need to intervene in the energy market with the construction of a new gas generator, acknowledging that a supply gap of just 154MW would remain after the closure of the Liddell power station.

Federal trade minister Simon Birmingham also appeared to blame the energy sector for failing to reach final investment decisions on replacement generators for Liddell, despite the energy sector telling the Morrison government that it was the government’s own threats of intervention that were creating too much investment uncertainty.

Officials from the Department of Industry, Science, Energy and Resources told Senate estimates on Tuesday that just 154MW of new generation capacity would be needed in 2023-24 to bridge any supply gap left by the closure of the Liddell power station.

This is less than the 1,000MW originally claimed was needed by prime minister Scott Morrison, and the latter figure of 250MW cited after Morrison walked back the figure in an interview with ABC’s Insiders.

Department officials conceded during senate estimates that the Australian Energy Market Operator had forecast a capacity shortfall of just 154MW, as detailed in its latest Electricity Statement of Opportunities, to meet the ‘Interim Reliability Measure’ in 2023/24 which imposes a higher standard for reliability than has traditionally been used by AEMO.

Departmental officials confirmed that it had never provided advice to Scott Morrison, or federal energy minister Angus Taylor, on the 250MW generation gap that the Morrison has claimed is necessary to fill a reliability gap left by Liddell power station when it closes.

“I asked you to explain whether anyone in this department has ever provided the number 250 Megawatts to the prime minister, to minister Taylor, or to [Prime Minister and Cabinet (PM&C)] in response to a request for information?” Labor senator Jennifer McAllister asked the department.

“The answer to that, specifically for me, is no,” deputy secretary for the department’s Energy Group, Sean Sullivan, responded. “I’m not trying to put words into the PM, nor did I give advice to PM&C. But in terms of why that 250 figure has got some currency is around those two major project proposals in the pipeline.”

Officials later clarified that the Morrison government’s 1,000MW target was based on both energy reliability and cost considerations, and that modelling completed for the Liddell Task Force suggested wholesale electricity prices could rise by as much as 20 per cent if no replacement capacity was built.

Sullivan pointed to two advanced proposals from EnergyAustralia and AGL Energy, which are likely to add 750MW of new gas generation capacity, suggesting that Morrison and Taylor are aiming to fill the remaining 250MW gap, to meet the original 1,000MW target for new generation capacity.

This is likely to be a reference to EnergyAustralia’s planned Tallawarra B gas power station, with an expected capacity between 300MW and 450MW, and a 252MW gas generator that AGL plans to build in Newcastle.

Trade minister Simon Birmingham, who represents the energy minister for the purpose of senate hearings, suggested that the Morrison government was prepared to intervene in the energy market if sufficient final investment decisions had not been made by April 2021.

Birmingham effectively blamed the energy industry for failing to reach final investment decisions on new projects to replace the Liddell power station.

“Industry has had five years since the announcement of [Liddell’s closure] came along and has not, at least progressed in AGL’s case, to final investment decision,” Birmingham said.

“There are a range of projects on offer. I think government has provided a clear window, not for the completion of projects by April next year, but at least for that final investment decision to be made and then for the projects to be completed by 2023-24.”

However, senator Birmingham did not acknowledge that the Morrison government’s threats to intervene in the energy market had been a contributing factor for why energy companies had held off from making final investment decisions, due to the uncertainty caused.

It also ignores the lack of progress by the Morrison government under its own Underwriting New Generation Investments scheme, which shortlisted 12 projects more than 18 months ago, and flagged negotiations with two gas generators last year, but has so far delivered just $8.7 million in funding for upgrades to a coal power station owned by a prominent Liberal Party donor.

Several energy market participants, as well as the Australian Energy Council and the Energy Security Board, have called on the Morrison government stop its ongoing threats to intervene in the energy market, as the uncertainty caused was preventing the private market from having sufficient certainty to sign off on new investments.

“The sector is struggling to make final investment decisions in an environment of ongoing policy uncertainty,” AEC’s Chief Executive, Sarah McNamara said in September, following the Morrison government’s initial announcement that it would build its own gas plant.

“We understand and support the Federal Government’s desire to facilitate competitive access to gas, but planning should be done independently of government through Australian Energy Market Operator advice, followed by private investment in infrastructure that is not underwritten by government.”

Department officials also walked back the significance of a grant provided to Shine Energy, which wants to build a new coal fired power station in Collinsville. Despite some within the Coalition arguing that a new coal fired power station should be built in North Queensland, representatives from the department of industry stressed that Shine Energy had only been engaged to undertake a feasibility study.

The department officials confirmed that just over $700,000 had been paid to Shine Energy for work completed on the feasibility study to date. No report has been released.

Note: This article previously attributed comments to Department of Industry, Science, Energy and Resources secretary David Fredericks, the article has been corrected to reflect that the comments were made by deputy secretary Sean Sullivan.