The federal government will build a gas power plant at Kurri Kurri if the energy sector does not replace the capacity lost from the closure of Liddell power station.
Prime Minister Scott Morrison will announce the project, which is part of the government's post-COVID gas-fired recovery plan for the nation, during a visit to the Hunter on Tuesday.
A government taskforce established to prepare for the closure of the Liddell power station in April 2003 found that closing the plant without adequate dispatchable replacement capacity risked forcing energy prices up by 30 per cent over two years or $20 per megawatt hour to $80 in 2024 and up to $105 per megawatt hour by 2030.
Mr Morrison said the potential price increases represented an unacceptable cost to families, businesses and job creating industries in NSW if the energy generated by Liddell wasn't replaced.
"Affordable, reliable and a secure electricity supply is critical to our JobMaker plan for households, businesses and industry," he said.
"We won't risk the affordability and reliability of the NSW energy system and will step in unless the industry steps up."
The government has given the industry until the end of April 2021 to show it can replace the capacity of Liddell.
The government confirmed on Monday night that Snowy Hydro is presently developing options to build a gas generator at Kurri Kurri should the market fail to deliver what is required.
The Newcastle Herald understands the potential gas plant would be built on the former Kurri Kurri aluminium smelter site that was acquired by developers Jeff McCloy and John Stevens.
It would be supplied with gas from the yet-to-be-completed Queensland to Hunter gas pipeline.
The project, whose shareholders include Garbis Simonian and developer Hilton Grugeon, will transport gas from the Wallumbilla gas hub near Roma in Queensland and Narrabri to Newcastle.
Energy and emissions reductions minister Angus Taylor said the market had an obligation to provide affordable, reliable power to consumers.
"The government has always been clear - we need to see life extension or like-for-like replacement of Liddell," he said.
"Over the last decade, the private sector has not built a single new reliable power plant in NSW.
"And in the five years since the closure of Liddell was first announced, the private sector has only committed to a single dispatchable generation expansion - a 100megawatt addition to the existing Bayswater plant. This falls far short of what is required.
"If industry steps up, we'll step back."
AGL, which operates Liddell power station, has said it is working to replace the 1800 megawatt capacity of Liddell through the construction of projects including the 250 megawatt gas-fired peaking plant at Tomago.
It also recently announced plans to install a 500 megawatt battery storage at the Liddell site. It forms part of a 850 megawatt multi-site integrated battery system AGL will develop by 2024
The government plans to boost the nation's gas transport network by identifying priority pipelines and critical infrastructure as part of a $10.9million National Gas Infrastructure Plan that will also highlight where the government will step in if the private sector doesn't invest.
It will reform regulations on pipeline infrastructure to promote competition and transparency and improve pipeline access and competition by kick-starting work on a secondary pipeline capacity market.
An Australian Gas Hub will be established at Wallumbilla to deliver an open, transparent and liquid gas trading system.
The project is designed to level the negotiating playing field for gas producers and consumers through a voluntary industry-led code of conduct, to be delivered by February 2021.
Mr Morrison said the gas-fired recovery plan was designed to deliver more gas where is was needed at an internationally competitive price.
"We'll work with industry to deliver a gas hub for Australia that will ensure households and businesses enjoy the benefits of our abundant local gas while we hold our position as one of the top global liquefied natural gas exporters," Mr Morrision, who is the first prime minister to visit the Hunter since Tony Abbott in 2015, said.
"This is about making Australia's gas work for all Australians. Gas is a critical enabler of Australia's economy.
"Our competitive advantage has always been based on affordable, reliable energy. As we turn to our economic recovery from COVID-19, affordable gas will play a central role in re-establishing the strong economy we need for jobs growth, funding government services and opportunities for all."
The Prime Minister said the government would also work with state governments through a program worth up to $250 million to accelerate three critical projects - the Marinus Link, Project Energy Connect and VNI West interconnectors.
"These links will help put downward pressure on prices, shore up the reliability of our energy grid and create over 4,000 jobs," the Prime Minister said.
"Our plan for Australia's energy future is squarely focused on bringing down prices, keeping the lights on and reducing our emissions and these interconnectors bring us a step closer to that reality."
Together with the government's existing support for HumeLink and the QNI Interconnector, this means we are accelerating all priority transmission projects identified in the AEMO Integrated System Plan.
The Government's plan will hold the energy companies to account and maintain downward pressure on electricity prices while simultaneously developing the backbone of a reliable, lower emissions National Electricity Market for the next decade and beyond.
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