Prime Minister Scott Morrison’s plan for a $600 million gas plant is facing fresh doubts about its financial viability as experts questions its ability to deliver a return on investment without driving up energy bills.
Monash University senior research fellow Ross Gawler modelled the operating costs of the 660 megawatt Kurri Kurri plant in NSW’s Hunter Valley and said it would deliver a $150 million loss each year for 20 years, totalling $3 billion, unless Snowy engaged in surge pricing to sell power at a high cost when there were shortfalls in the network.
“Our modelling shows that either Snowy Hydro will lose money on the Kurri Kurri gas plant, because of the increased supply in the National Electricity Market, or it would have to game the market and charge higher prices in periods of peak demand – costing NSW businesses and consumers,” Mr Gawler said.
Snowy Hydro chief executive Paul Broad rejected Mr Gawler’s analysis and said there will be enough future demand in the market for Kurri Kurri to make a sustainable return on taxpayers’ money.
However, due to commercial sensitivities in contract negotiations, it’s unclear when the business case will be released, which means Snowy cannot fully detail how it will operate in the market.
As the share of weather-dependent renewables in the energy grid grows, so does the need for backup on-demand power from gas, batteries or pumped hydro. There is heated debate over the need for gas in firming up renewable supply, which creates carbon emissions, and the ability of batteries to replace it.
Mr Broad said Kurri Kurri would not be propped up by capitalising on “market volatility” by selling high-priced power into the spot market, but rather support lower prices by offering competitive contracts to energy users.
“Increasing supply will have the effect of driving down electricity prices, and will provide the necessary dispatchable ‘firmed’ energy, ensuring security and stability to support the volatility that arises from intermittent renewables,” Mr Broad said.