‘Too much risk’: Call for strategic coal power reserves

The investment is made more urgent by AEMO’s forecast that coal power will exit the National Electricity Market much faster than is being assumed, with all coal plants likely to close by 2038, five years sooner than it estimated last year.

Mr Collette said the scale of the transformation needed to hit Australia’s 2030 climate targets was “hard to overstate”.

”Government and corporate ambition is strong, policy is supportive, but challenges remain, including supply chain, social licence and workforce availability,” he said.

“The timeline for coal exits highlights that getting the details right for the Commonwealth-state agreement on a strategic reserve for each state is essential.”

Opposition energy spokesman Ted O’Brien said AEMO’s report showed the country’s energy market was “on the verge of collapse”, with government policies forcing baseload coal plants out of the market prematurely with no guarantee of replacement reliable power.

The comments come as the NSW government started on Friday to consult on a so-called “orderly exit management framework” to support the exit of coal power plants from the system, which would involve government-backed extensions of plants if required to keep the lights on.

Industry sources say such back-up is clearly needed, pointing to the squeeze on the NSW power grid on Thursday due to the outage of just one coal power unit, which coincided with high electricity demand amid soaring temperatures. AEMO on Friday issued another level-two warning – for next Tuesday – over insufficient generating reserves in NSW.

The tighter supply-demand balance follows the long-advised closure of AGL Energy’s Liddell coal power plant in April and ahead of the targeted August 2025 closure of Origin Energy’s huge Eraring plant, which the NSW government has decided needs to be delayed.

AEMO’s $121 billion blueprint to transform the power grid to suit low-carbon energy also exposed gaps in policy that cast doubt on how the huge task will be achieved.

The market operator now says an extra 16.2 gigawatts of gas power generation is needed by 2050, up from the 9GW in the 2022 version of its Integrated Systems Plan. At the same time, actual generation from gas plants is expected to dive sharply out to the mid-2030s as cheap wind and solar take over, arguably putting more reliance on policy to help underwrite the investment.

But the beefed-up Capacity Investment Scheme announced last month by the Albanese government specifically excludes gas, fuelling worries whether weather-dependent wind and solar farms can be firmed up and made reliable as coal plants close.

Sarah McNamara, head the industry body that represents electricity producers, said the ISP had highlighted the important role for gas to help manage peak demand and cover prolonged “droughts” in wind and solar generation.

“The challenge for policymakers– and that is at state and federal government – is to make sure we have the policy settings right so we can encourage the development of the stabilising energy generation that we need to fill what is likely to be periods of supply drought into the future,” she said.

“The specific exclusion of gas from the Capacity Investment Scheme means that the gas challenge has not been addressed.”

Ms McNamara said it was now up to state governments through bilateral deals with Canberra to ensure the stability of their grids, with some states such as South Australia set to welcome more gas power into their systems, while Victoria has decided against.

Australia has about 11 gigawatts of installed gas power capacity, but with 8 gigawatts set to be retired, about 13 gigawatts of new plants will be needed, calculated the Australian Pipelines and Gas Association, which represents APA Group, Jemena and others.

That is the equivalent of about 17 Hunter Power Projects, the new gas plant being built by Snowy Hydro near Newcastle, or 280 plants the size of Squadron Energy’s planned Dubbo gas plant in NSW, said APGA CEO Steve Davies.

The comments came as the Australian Competition and Consumer Commission renewed its warnings that gas shortages threaten the south-eastern states starting in 2027 in the absence of investment in new supply. The finding was described by gas producers as a “wake-up call for governments”.

“Without the development of new gas fields, pipelines and potentially LNG import terminals, or without a significant reduction in demand, the east coast will experience sustained gas shortfalls,” the ACCC said.

Squadron, which aims to deliver one-third of the Albanese government’s target of 82 per cent renewable energy by 2030, fully endorsed AEMO’s grid plan, pointing to its investments underway in wind power in NSW and Queensland, as well as its gas investments at Dubbo and the Port Kembla gas import terminal.

“This mix of renewable energy, backed up by batteries and dispatchable gas sourced without new gas fields, is the right balance to deliver reliable, affordable and clean energy for Australia,” said the company, owned by mining billionaire Andrew Forrest.