When is Liddell Power Station closing?
The Liddell Power Station, located in the Hunter Valley Region of New South Wales, is set to close in April 2023 after almost 50 years of operation. Bowing out as one of the largest power stations ever in Australia, Liddell has supplied electricity to millions of businesses & homes across its lifespan.
Liddell’s demise is part of a broader strategy towards a cleaner energy transition for Australia, and it follows the closure of one-third of all Australia's coal-fired power stations between 2012 to 2017. Those coal stations remaining are expected to close over the next few decades.
So as another coal station closes, what will be the impacts from the Liddell closure come April 2023? Does Australia have enough energy supply to cover the losses we’ll see from the closure? And furthermore, can Australians expect to see an increase to their energy bills as they have seen in the past? Read on to find out more.
Why is the Liddell Power Station Closing?
AGL, the owner of the Liddell Power Station, announced the Liddell Power Station closure as part of its strategy to reduce its carbon emissions and transition to a much cleaner energy source. They announced plans to replace the station with a mix of renewable energy sources, energy storage, and gas-fired power generation.
However, there are underlying challenges with trying to keep a 50-year-old power station operational. Firstly, the cost of maintaining and upgrading the aging infrastructure is increasingly expensive. This has resulted in units not operating to their original design capacity. For Liddell specifically, its registered capacity of 500MW per unit has not been achieved in the last few years and the three remaining online units are producing a max of 400MW- 1200MW total but an average of 800MW over the last 13 months (Watt Clarity).
Secondly, with the increasing availability of cheap renewable power, it is more cost-effective for AGL to invest in renewable energy. Thirdly, changes in the energy market have made it more challenging for coal-fired power stations to remain profitable due to the availability of cheap renewable energy. Lastly, Liddell is a coal-fired power station meaning it is a significant source of carbon emissions for Australia facing pressure from customers and citizens alike.
According to Greg Bourne, Climate Councillor, energy expert and former President of BP Australasia, “Coal is unable to compete on cost with renewable energy, it is also inflexible, ageing, unreliable and inefficient. In Australia, and globally, renewables backed by storage deliver the cheapest power, and do so without the greenhouse emissions coal and gas produce.”
Comparing Liddell to Hazelwood
When the Hazelwood Power Station closed in March 2017, accounting for 20% of Victoria’s power supply, it wreaked havoc on Victorians and energy prices. A year after the closure. Victoria saw an 85% increase to wholesale electricity prices, having huge impacts on businesses and their energy bills, as reported by the ABC. However, the impact wasn’t only seen in Victoria - spot prices increased by 32 per cent in South Australia over the same period, and in New South Wales and Queensland 63 per cent and 53 per cent respectively (AER). It was also the first time in ten years, Victoria relied on electricity from other states, including South Australia and New South Wales, demonstrating the interconnectivity and complexity of the National Energy Market.
Australian Energy Regulator (AER)chair Paula Conboy stated the rise was driven by “the replacement of Hazelwood's cheap, brown coal-fired power generation with power from higher cost sources such as black coal, gas and hydro, at a time when black coal and gas prices were rising.”
While the Hazelwood and Liddell Power Station closures were driven by similar factors the Hazelwood closure was more sudden with less than six months to prepare for the closure, and the power station accounted for a larger amount of power supply that needed to be sourced elsewhere. In comparison, the Liddell closure has been scheduled for many years in a gradual shutdown fashion and is expected to have a smaller impact on the community, given in 2022 it only contributed to approximately 8.3% of NSWs total energy requirements, however, there are still risks to consider (PV Magazine).
Risks and impacts to the Liddell shutdown
In Australia, coal continues to be the dominant source of energy across the NEM, with 51% of total electricity generation in 2021 derived from coal. This means that a significant portion of the energy that businesses rely on is generated by coal-fired power stations, so it’s not surprising if there are concerns about reliability and future supply.
In order to address the potential impacts of the Liddell closure we need to review its contribution to the energy grid to date and discuss what energy sources will be replacing the coal power station once it closes.
In 2022, Liddell contributed to approximately 8.3% of NSWs total energy requirements. As referenced in Watts Clarity, the AEMO reports there is approximately 5,000 MW of new capacity “committed” from multiple sources statewide including gas fired, solar, wind and hydro, which should supply ample generation. However there is concern, the additional renewable energy isn’t due to come online until the end of 2023, leaving a gap of six months over winter.
Table 1. Scheduled Generation Sources (Watts Clarity)
Table 2. Scheduled Capacities (Source: Watts Clarity)
Winter in NSW typically requires a bigger load compared to other states and the summer period because there is less gas available for heating in NSW (see graph below). This means if the state experiences a cooler than average winter, there could be reason to be concerned over supply and demand and pricing.
In December last year, Matthew Warren of the AFR (also former chief executive of the Australian Energy Council), said “AGL’s Liddell Power Station in the NSW Hunter Valley will close, just before the start of winter. It feels like the plot of a Stephen King novel. The decision on closure timing was made seven years ago. It should be delayed, but it won’t be.”
Chart 1. Demand peaks for winter and summer by state (Source: AEMO)
According to William Curtis (PV Magazine) it’s important to address how NSW currently manages peak power periods.
When looking at reliability in peak periods since Liddell’s Unit 3 closed, there were instances of NSW having a lack of reserves to meet peak demand. A point of concern is that NSW currently relies on other states to meet peak demand.
“NSW currently needs to import at least 1,000 MW for 41.2% of the time, 500 MW for 77.8% of the time and 300 MW for 88% of the time. This illustrates a heavy reliance on importing energy during peak intervals to keep prices stable and energy flowing.
With reserves being ‘the ability of available supply to meet local NSW demand’, NSW had reserves of less than 1,000 MW available 10.5% of the time. Removing the availability of Liddell, NSW would have reserves of less than 1,000 MW for 16.8% of the time.”
There is also the argument that by closing coal stations you are adding more risk to volatile periods because you are taking out “baseload”.
Baseload power refers to the minimum amount of electric power required to be supplied to the electricity grid at any point in time and the traditional definition is tied directly to coal-fired power stations that historically provided the most energy at the cheapest cost.
With lower levels of baseload it’s a technical challenge to ensure that intermittent generators like solar and wind and relevant interconnectors across states can supply the minimum energy required in the absence of coal-fired generators. But is our energy market up for the task?
And for those who believe AGL or market operators will somehow keep the power station open as a back-up, there is literally no chance, with the demolition contract being awarded to Delta recently and work to commence within the next 24 months.
The impending Liddell closure has already had an impact on business energy cost across the eastern seaboard, which is represented in current pricing.
While we don’t anticipate market pricing to further change following the shutdown, with the new renewable energy sources not coming fully online until summer 23-24, and the interconnected grid’s exposure to external factors including extreme weather events impacting supply and demand, the grid is more vulnerable, which means we can’t completely rule out an increase to energy costs. The sky won't fall in but it will be tough to replace the power station coal-fire generation especially if it is a colder or wetter than normal winter.
If there is an impact to energy pricing by the closure of Liddell it will have the biggest impact on energy-intensive industries who are coming out of contract, in particular such as mining, manufacturing, and agriculture, which rely heavily on affordable and reliable electricity to operate.
In order to mitigate these impacts, we encourage businesses to explore the viability of commercial solar as a way to reduce their reliance on the grid and work with an energy procurement expert before April to try to alleviate any exposure.
If the past two years have taught us anything, it is that there are a range of external factors that can impact supply and demand of our natural energy resources, which is why you can’t afford to be bullish with hoping we have enough supply to get us through.
Learn how we have helped over 8,000 customers like you reduce their energy costs here.
Take back control of your energy costs this year contact us here for a free, no-obligation energy health check for your business or, call us on 1300 304 448.