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Dismay in Australia as AU$600m fossil fuel peaker backed instead of ‘more viable’ battery storage

Renewable energy fund CEP. Energy proposed a battery system with up to 1,200MW in the region to help ease Liddell coal plant into retirement. Image: CEP. Energy.

Cross-party backing for a new fossil fuel power plant in Australia has been criticised by experts and clean energy industry voices, who have said battery storage would be a more viable option to provide peaking capacity. 

The plan to build a 660MW peaker plant fuelled by gas and diesel in the Hunter Valley, New South Wales (NSW), had been strongly backed by the country’s federal government, headed by the Liberal Party and Prime Minister Scott Morrison. 

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The project, Kurri Kurri Power Station, has been described as a “government-built white elephant” by Bruce Mountain, director of the Victoria Energy Policy Centre at Victoria University, in a recent article contributed to The Conversation

However, in December 2021 the NSW state government granted conditional approval for the power station to receive critical State significant infrastructure (CSSI) status. A few days ago, Australia’s main national opposition party, Labor, also gave its backing to a project it had previously opposed. 

Labor had given the government plan its support, conditional on the project owner, utility company Snowy Hydro, adapting the Kurri Kurri plant to run 30% on green hydrogen from its start of operations in 2023, and 100% by 2030. 

However, Victoria University’s Bruce Mountain debunked both the need for the (mostly) fossil fuel plant in the first place, as well as strongly questioning the benefit of Labor’s green hydrogen gambit. 

Mountain argued that not only is the power station altogether an unnecessary project, the hydrogen retrofit would be “so expensive as to be unrealistic,” and called burning hydrogen for power “about the least useful thing you can do with it”. 

Professor Mountain, with colleague Dr Steven Percy and independent engineer Ted Woodley, wrote a paper analysing the project’s original plan, published in June 2021. 

Although flexible dispatchable generation has been provided historically by a combination of pumped hydro and open cycle gas turbines (OCGT), lithium-ion batteries have come down in cost and progressed so far in their technological development to become an alternative source of dispatchable generation, they wrote. 

Furthermore, the ongoing rise of renewable energy generation in Australia is already driving forwards development of various flexibility assets for the electricity network, from large-scale transmission interconnectors, to other gas projects, new large-scale pumped hydro and batteries — a lot of batteries, and mainly proposed by private developers. 

The authors disputed a government claim that the Australian Energy Market Operator (AEMO) has modelled a need for 1,000MW of new resources to come online to replace capacity from Liddell, a coal-fired power station set for retirement. AEMO had forecast no shortfall of dispatchable generation and in fact more battery and renewable generation projects announced since AEMO’s studies made that even less so.

A claim that Kurri Kurri would reduce power prices was “tenuous,” they argued, given that the peaker plant would have a slow and inflexible response time of 30 minutes, whereas the National Electricity Market (NEM) has introduced 5-minute settlement for electricity pricing since October 2021 — making  fast-responding batteries far more competitive.  

While an assumption is sometimes made that more renewables equals more gas plants to fill gaps in generation from variable wind and solar, according to AEMO’s Integrated System Plan (ISP), gas peaker plants in NSW would run and produce electricity for between just four and 13 hours in every year up to 2030.

The authors strongly questioned a AU$600 million (US$425 million) price tag quoted for the project, indicating the cost would run several hundred dollars over that, even before Labor’s hydrogen retrofit proposal was introduced. 

There is at best “a tiny market for the sort of service that KPPS can offer and so it has no prospect of earning anywhere near the revenues needed to recover its outlay,” Mountain, Percy and Woodley wrote in their study. 

Peaker plant plan ‘undermines’ Australia’s energy transition

This morning the Clean Energy Council, a national trade organisation for the industry said final approval of the peaking plant project “undermined” Australia’s efforts to build a low-cost, low-emissions and reliable energy system. 

“A utility-scale battery for this site was the smarter choice both economically and environmentally,” Kane Thornton, the Council’s chief executive said.

The Clean Energy Council published its own paper last year, “Battery storage — the new, clean peaker,” which offered techno-economic analysis of the batteries versus peaker plants debate. Thornton pointed out today that as outlined in that paper, batteries can provide peak electricity more cheaply than the OCGT plants planned for Kurri Kurri Power Station.

“The Kurri Kurri plant is only expected to run for about one week of every year. When battery storage can deliver a cost saving of 30% while delivering greater flexibility and significantly reducing emissions intensity, it makes no sense to be spending taxpayer dollars on this fossil fuel project,” Thornton said. 

Not only did the study model that a 250MW/1,000MWh battery peaker plant in New South Wales would be considerably cheaper than gas, the Clean Energy Council also pointed out that battery storage is a multiple application asset class. 

The services it can provide, coupled with the ongoing reconfiguration of energy market rules to accommodate it and other clean energy technologies, strongly implied the value of batteries will go up. 

Since the publication of the Council’s paper las year, AEMO has introduced new regulations to incentivise investment in battery storage, and is looking to create battery-friendly market structures for Fast Frequency Response, while the frequency control ancillary services (FCAS) market is already a key source of revenues for large-scale battery projects.

Conversely, new fossil fuel projects carry not only a diminishing economic impetus from a technological perspective, but also carry policy and economic risks; for instance if international carbon pricing markets are brought to bear on the cost of Australian exports. 

Lillian Patterson, an energy economy expert working for the Clean Energy Council at the time the study was published, told in an interview that there is no economic rationale to building fossil fuel peakers in Australia anymore.

Finally, converting Kurri Kurri to run on hydrogen will be an expensive and significant undertaking, not only for the plant itself, but for its pipeline and storage infrastructure, Victoria University’s Bruce Mountain wrote. 

While utility Snowy Hydro said its turbines could extend to a 30% hydrogen maximum mix, the gas pipelines and storage are only being constructed to accommodate 10% hydrogen in the mix and will need a subsequent total rebuild. 

Green hydrogen will likely have a major role to play in decarbonising hard-to-abate emissions in industries like fertiliser production and various heavy industrial processes, or even long-distance export. 

However, burning it in Australian power plants to produce electricity represents an inefficient use when much of the energy will be vented off as heat and wasted. The fact that batteries represent a better alternative, and are already here today, means that there is “absolutely no need to bother” combusting green hydrogen at Kurri Kurri and other sites, Bruce Mountain and engineer Ted Woodley argued. 

Indeed, around this time last year Australian renewable energy fund company CEP.Energy proposed the building of a battery storage plant of up to 1,200MW output in Kurri Kurri, to help replace the Liddell coal power station. It would be the country’s largest battery energy storage system (BESS) to date, if it were to go ahead. 

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