VNI West could give black coal plants a reason to “stay in the game,” analysis warns

The controversial VNI West transmission project linking Victoria with New South Wales has raised yet another red flag, this time with a warning that it could delay the closure of Australia’s dirty black coal generation fleet and compromise Australia’s emissions reduction effort.

Analysis published on Tuesday by Cornwall Insight finds that the new preferred route for the Victorian-NSW transmission link, released last week, could boost NSW coal generation by around 1 TWh a year over a period of three years, starting in 2030.

Cornwall says this comes down to the latest the preferred scenario for VNI West put forward last week by AEMO and Transgrid, that would see the transmission line crossing the Murray River north of Kerang, instead of near Echuca.

As RenewEconomy has reported, the new route – dubbed route option 5A – will allow greater capacity to be carried in the renewable energy zones it connects, but could also lead to significantly less investment in wind, solar and storage in Victoria.

Cornwall says the increase in transmission limits from VNI West opens up opportunities for NSW coal to export energy to Victoria during periods when wholesale prices in that state are lower than in Victoria.

“Combined with the retirement of Eraring and delayed energy transition targets in NSW, this dynamic could lead to increased output and profitability for the remaining coal units in NSW,” the report says.

“If a unit is forecast to be profitable, there is limited economic reason to retire that plant, and therefore VNI West has real potential to delay the retirements of NSW coal units.”

The findings deliver another blow to the proposed $3.3 billion VNI West transmission link, as one of the more controversial and hotly contested parts of the Australian Energy Operator 30-year planning blueprint – also a centrepiece of the federal Labor government’s Rewiring the Nation program.

The proposed transmission upgrade has attracted criticism from landowners and local councils over visual and environmental impacts and the fate of endangered species. It has also divided experts over whether it offers best value for money and the best support for renewables.

As RenewEconomy editor Giles Parkinson put it last week, “it almost perfectly illustrates the diabolical problems facing the need to expand the grid.”

The new analysis from Cornwall adds a worrying new twist – that VNI West may not align with the most efficient solution for emissions reduction.

“This projected need for increased coal generation presents an interesting dynamic for the industry, particularly for coal plants,” says Cornwall Insight energy market analyst Mehrdad Aghamohamadi.

“With the anticipated rise in exports to Victoria, alongside the retirement of Eraring and the delayed energy transition targets in NSW, there exists the possibility of a considerable uptick in prices and potentially enhanced profitability, giving coal generators a reason to stay in the game.

“Despite this, it is important to recognise the value of considering the broader implications of this potential delay in retirement plans,” Aghamohamadi says.

“While the short-term economic benefits may be evident, it is essential to evaluate the long-term alignment with emission reduction goals and the transition to cleaner energy sources.”