AGL boss Andy Vesey yesterday pledged to “consider” keeping the Liddell power station open for another five years, or sell it after its planned closure date in 2022 in a meeting with PM Malcolm Turnbull and Energy Minister Josh Frydenberg.
Turnbull and Frydenberg claimed the meeting as a success, but they do not seem to have brought Vesey to their side.
“Short term, new development will continue to favour renewables supported by gas peaking. Longer term, we see this trend continuing with large scale battery deployment enhancing the value of renewable technology. In this environment, we just don’t see new development of coal as economically rational, even before factoring in a carbon cost,” Vesey said in a statement.
The proposals will go to the AGL board, and the company will report back with what it decides. Delta Electricity has been touted as a possible buyer for the coal-fired power plant, but there are already Australian lessons about what could lie in store for those considering prolonging the life of Liddell after 50 years.
When Hazelwood power station in the Latrobe Valley was shut down in March this year, there was a last-minute push for the government to take over the plant, mainly from former PM Tony Abbott. What the push ignored was just how much money would have been required to repair the plant in order to keep it open. Five of the eight boilers were in need of repairs, with expensive boiler tubes required to be replaced by WorkSafe notices. French company Engie estimated that it would cost at least $400 million just to get Hazelwood to a point where it complied with safety requirements, and operating costs would be extra.
In Western Australia, taxpayers are counting the cost of redeveloping the Muja coal-fired power plant, only for the government to announce that it will be closing the plant in September next year. The former Liberal government under premier Colin Barnett announced in 2009 that the plant would be re-opened, at a cost of $150 million. That cost blew out by $310 million and an extra 18 months on its timeline, with the plant now to be closed anyway.
Last week Australian chief scientist Alan Finkel said the cost to extend the life of a coal-fired power station for 10 years longer than its expected life could be in the $500 million-$600 million range. AGL says it has already spent $123 million on upgrading the power plant since purchasing it from the New South Wales government in 2015, and the company anticipates it will spend another $159 million “to improve reliability at Liddell before it closes” in 2022. Problems with boiler tubes meant that the plant didn’t run at full capacity during a heatwave in February this year.
Frank Jotzo, director of the Centre for Climate Economics and Policy at the Australian National University, told the ABC yesterday it didn’t make business sense to keep Liddell open, “given the fact that keeping Liddell open by everything that we hear from the engineering experts would require major investment to keep that plan open for longer”.
Just how much, he said, was unknown. “We can’t look inside the plant and inside the company to know [how much], but the estimates that are being bandied about are half a billion upwards, perhaps up to a billion dollars investment needs to keep that plant running for perhaps an extra 10 years past 2022.”
Jotzo told Crikey that investing the hundreds of millions required to buy Liddell and keep it open isn’t attractive for energy companies.
“A really massive amount of money would need to be invested and the business case for that seems very questionable because you would need to recoup all of that investment over a five year period”
He also warned that while we can’t see what is going on within AGL when it comes to Liddell directly, we can see the effects that ad hoc intervention by governments in Australia will have on the energy sector.
“Where you have a federal government coming in and very strongly trying to force particular investment or divestment decisions … it really goes against the fundamentals of a market based system and it is really big problem for market based investors.”
“You just get a situation where you don’t know what will happen and it becomes harder and harder to make a decision because you don’t know if the government will come along again.”
Simon Holmes a Court, senior adviser at the Energy Transition Hub at the University of Melbourne says AGL is likely to report that the best option is to replace Liddell with a mix of renewables, gas and pumped hydro. With the demonstration solar thermal plant built in 2012 also located at Liddell and the existing grid connection, some of AGL’s proposal might well be on the existing Muswellbrook site.
“Liddell has been very sick for years — it’s in worse shape than Hazelwood was. Arguably Liddell has never been a reliable generator, so if you wanted it to operate it reliably for another five years you’d need to make a very significant investment, and your chances of making that back are small.”
The costs involved with replacing equipment and maintaining Liddell are at a minimum and don’t include other costs a potential buyer would have to take on — including rehabilitating the site and employee obligations when it eventually shuts down.