Taxpayers cop $600m gas power plant in Hunter Valley

Prime Minister Scott Morrison last year gave the private sector until the end of April 2021 to detail investment plans to fill the gap or the government would step in.

Mr Taylor said the government had “given the private sector every opportunity” and was now “fulfilling its promise to deliver the cheap, reliable power that NSW households, businesses and industries needed to prosper and grow”.

Without this, the market will get increasingly volatile with prices skyrocketing at peak.

— Government fact sheet

“We were very clear from the start – we will not stand by and watch prices go up and the lights go off. This project will deliver flexible gas generation to replace Liddell and maintain reliable power alongside Australia’s world-leading investment in renewables,” he said.

Both gas-fired power stations are part of the transition from coal to renewables and will provide backup power. They will be designed so they can run on hydrogen should that fuel be able to be produced commercially.

But the sector has opposed the government intervention, arguing that only about 200MW was needed to replace Liddell.

The Australian Energy Market Operator has stated previously that between 153MW and 215MW would be needed. But Mr Taylor said this would only guarantee reliability, not lower prices, and the Liddell taskforce had recommended 1000MW.

“Without this, prices risk rising 30 per cent by 2024, exceeding $100 per megawatt hour by the end of the decade,” the government said in a fact sheet supporting the new project.

“Those who focus only on reliability are wilfully missing the full picture. We need enough dispatchable capacity to keep prices down for families and businesses.

“Without this, the market will get increasingly volatile with prices skyrocketing at peak.

“This private-sector inaction over the last decade is why it was necessary for the government to set industry a dispatchable generation investment target.”

The estimated $600 million cost of the gas peaker will not show up on the budget bottom line because the government will own the asset. The power station is scheduled to be operational by the summer of 2023-24.

The Hunter Valley also contains a handful of Labor seats the Coalition is targeting at the next election.

Grattan Institute energy expert Tony Wood was among those questioning the need for another power station. He said previously it was naive to think the market could be flooded with cheap power, “because markets adjust”.

“The market does not need another generator,” he said. “It seems like a bad deal to me.”