Morrison government to fund $600m gas-fired power plant in NSW Hunter region

The Morrison government has confirmed it will spend up to $600m to build a new gas-fired power plant in New South Wales’ Hunter Valley despite experts warning the fossil fuel investment makes little commercial sense.

The government announced on Tuesday night it was dedicating unallocated funding in last week’s budget to the publicly owned Snowy Hydro Ltd plan to build a 660 megawatt gas plant at Kurri Kurri.

It follows Scott Morrison warning last September that taxpayers would step in if the private sector did not commit to building at least 1,000MW to replace the Liddell coal-fired generator in 2023. EnergyAustralia announced last week it would build the 316MW Tallawarra B gas-hydrogen plant with $83m in state and federal support.

An environment impact statement lodged with the NSW government shows the Kurri Kurri plant would be rarely used. It is expected to run at just 2% of its full capacity across the year, filling gaps at times of peak demand. It would be expected to be powered initially by diesel – an even more expensive and polluting fuel – before receiving its gas supply.

In a statement, the energy and emissions reduction minister, Angus Taylor, said the two new plants were part of the government’s “gas-fired recovery” from the coronavirus and were needed to avoid “unacceptable price increases” when Liddell closed. He said 600 jobs would be created at the peak of Kurri Kurri’s construction.

“Cheap power is crucial to ensuring families, businesses and job-creating industries in NSW can thrive, which is why we are committed to replacing the energy generated by Liddell to keep prices down,” he said.

Energy experts and government advisers dispute whether additional generation is needed to replace Liddell, and say there are cheaper and emissions-free alternatives to gas generation that can provide the “dispatchable” power needed to support variable solar and wind energy.

The chair of the Energy Security Board, Kerry Schott, told Guardian Australia gas was “expensive power”, and said a taxpayer-funded gas plant made little commercial sense given the abundance of cheaper options flooding the market.

A taskforce advising governments about the impact of the Liddell closure did not find an additional 1,000MW would be needed from a grid reliability standpoint, and listed a range of committed and probable projects that it found would be “more than sufficient”.

Taylor said it was “a responsible investment”, with strong returns expected. The government points to evidence from the Australian Energy Market Operator (Aemo) that found between 6 and 19 gigawatts of new dispatchable generation would be needed over the next 20 years.

Aemo found that generation could come from a range of sources including batteries, pumped hydro and demand management. It said new gas “peaking” plants (such as Kurri Kurri and Tallawarra B) were also an option, but were likely to be more expensive.

Climate scientists have objected to the government’s support for new gas-fired power at a time when rapid cuts are needed. Gas power is sometimes described as having half the emissions of coal, but studies have suggested this is an underestimate.

Supporters of gas power have said it will rarely be used and can help smooth the system as coal is increasingly replaced by solar and wind, but some argue investments in it should be left to the private sector.

The announcement coincided with the International Energy Agency warning in a major report that development of new oil and gas fields and coal-fired power plants needed to stop this year if the world was to stay within safe limits of global heating.

Taylor’s statement emphasised the government’s other support for gas in the budget, including $30m for early work on a Port Kembla generator proposed by the billionaire Andrew “Twiggy” Forrest, and $24.9m to support new gas generators including Tallawarra B to be hydrogen-ready.

The Kurri Kurri site was previously an aluminium smelter. It was bought by Hunter Valley property developers Jeff McCloy and John Stevens in 2020, with a plan to transform the area into industrial estates, a business park and a new suburb called Loxford Waters.

Officials from the federal Department of Industry, Science, Energy and Resources were asked by the Labor senator Jenny McAllister whether they were “aware that the prospective owner of [the Kurri Kurri] site” – Jeff McCloy of McCloy Group – “was a major Liberal party donor”.

The secretary of the department, David Fredericks, said he was unaware of that, and it was “a matter for Snowy Hydro”.