Tomago Aluminium boss Matt Howell has welcomed the Morrison government's commitment to build a gas-fired power plant at Kurri Kurri as energy analysts, environmentalists and school students line up to slam the $800 million project.
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Mr Howell, whose company employs 1100 people and uses 10 per cent of the state's electricity, told the Newcastle Herald that the smelter had been forced to close three times in the past week as a cold snap put pressure on the state's power grid and prices.
The smelter acts as a price relief valve for the power grid by closing briefly in times of high demand, which included on Tuesday afternoon and Wednesday morning.
The government-owned Snowy Hydro plans to build the $600 million, 660MW plant by 2023 to compensate for the closure of Liddell coal-fired power station.
It will also spend $200 million to extend the Sydney-Newcastle gas pipeline to Kurri Kurri, but the plant will run on diesel initially and when the pipeline cannot cope with demand.
An environmental impact statement for the "peaking" plant says it will operate only two per cent of the time, on average, to support the grid when demand spikes.
Mr Howell said Tomago was pursuing renewable electricity sources but agreed with Scott Morrison and Energy Minister Angus Taylor that gas was an "essential" transition power source.
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"We know coal is going to exit. It should. There are cleaner ways of generating electricity," he said.
"But, if you don't have dispatchable power, and that will come from gas, the lights go out."
Critics of the Kurri Kurri project questioned why it was needed when the Snowy Hydro-owned Colongra gas plant, on the Central Coast, was barely used.
"Last night as NSW electricity prices hit over $7000 MWh, Snowy Hydro's Colongra gas peaking plant didn't operate," the Australia Institute think tank tweeted.
"So why are taxpayers forking out $600m for another gas peaking plant for Snowy Hydro to turn off when electricity is needed and prices spike?"
A host of analysts and green groups have predicted that the Kurri Kurri plant will be redundant as the cost of renewable energy and battery storage falls.
The International Energy Agency published a report this week which called for an end to coal and gas projects if the world was to meet a target of net-zero emissions by 2050, but it also said gas-fired generation "remains an important part of electricity supply through to 2050".
Institute for Energy Economics and Financial Analysis expert Bruce Robertson said on Wednesday that running a power plant for two per cent of the time was "uneconomic".
"You cannot run a gas-peaking plant with such low capacity factors and not lose money. You've got to actually pay back that capital," he said.
He said gas usage in power generation had fallen 42 per cent in the National Electricity Market since 2014.
"That has occurred with incredible under-utilisation of gas plants around the country. Colongra is a very similar size to the one they want to build at Kurri Kurri. Its current utilisation rate is 0.9 per cent. In other words, it's virtually mothballed.
"So there's immense capacity there. Typically in Australia gas peaking plants run at about 10 per cent, and even that's low."
He said Origin Energy's Uranquinty gas power station, near Wagga Wagga, was operating at about 12.8 per cent in 2016 but this had dropped to 2.1 per cent.
Snowy Hydro chief executive officer Paul Broad said Colongra had bidded into the electricity market during Monday's demand spike, but AGL had relieved pressure on the grid by opting to shut down supply to Tomago under its contract with the smelter.
He said Colongra had been used during the bushfires of 2019-20 to keep the state powered and defended the Kurri Kurri plant as "massively" necessary.
"When we get past '23-'24, we'll need more of these things," he said. "The lead times are very long, and we need to start planning now."
Mr Taylor said analysts were "wrong" to describe the gas plant as a white elephant because it would be able to convert to green-generated hydrogen when supply became commercially viable.
Mr Robertson said it was likely the plant would run on gas and diesel for the foreseeable future.
"Nowhere on the globe today is green hydrogen being produced at an economic scale, so we're looking at some way off before that's going to happen," he said.
"In the meantime, for your residents of Kurri Kurri, they will be putting up for the first six months with a plant that's not burning gas but burning the highly polluting and expensive diesel.
"It will also burn diesel when the gas runs out. It doesn't have the infrastructure to burn gas for very long."
Mr Morrison announced a "gas-led recovery" last year and challenged the private sector to confirm investment in 1000MW of new dispatchable electricity generation by the end of April or the government would step in and build the Kurri Kurri plant.
EnergyAustralia is building the 435MW Tallawarra B gas plant near Wollongong after receiving a $78 million state grant and $5 million from the federal government.
AGL put its planned 250MW gas plant at Tomago on hold after the NSW government announced an energy "roadmap" focusing on underwriting renewables.
The chair of Australia's Energy Security Board, Kerry Schott, has said the Kurri Kurri plant does not make commercial sense.
The Australian Energy Market Operator forecast last year that the power "reliability gap" would be 154MW in 2023-24 when Liddell closed, much less than the government's target of 1000MW.
Mr Taylor's office said on Wednesday that the government's higher target was intended to ensure lower prices and not just reliability.
Mr Howell said reliability was vital to the smelter.
"It's not just the price. This business cannot go for more than about two-and-a-half hours without power. If we do, the pots will freeze and the business will close."
He said the recent outages had left the company "pretty concerned".
"Reliability is critically important, and that's why we are presently engaged in a search for firmed renewables. Get as much wind, solar, hydro as we can.
"You might hope for the best, but you have to plan for the worst. The worst is no sun, no wind and we need 950MW every second of the day and night.
"In those occasions like we saw this morning and yesterday afternoon, it can only really come from a thermal source."
The government says the Kurri Kurri project will create 250 construction jobs, plus another 350 for the pipeline work, though the plant will require only 10 full-time jobs to operate.
NSW's Liberal Environment Minister, Matt Kean, has questioned the need for the plant in the past.
Asked on Wednesday how the plant aligned with the state's energy plan, he said: "We have got a clear plan to keep the lights on and drive prices down. If the federal government wants to invest additional resources, we welcome it."
The gas plant has divided opinion in the Labor party.
Hunter MP Joel Fitzgibbon took to the airwaves on Wednesday to emphasise his support for the project.
Paterson MP Meryl Swanson, whose electorate includes Kurri Kurri, also voiced her support, as did the Labor candidate in Saturday's Upper Hunter by-election, Jeff Drayton.
"The local community overwhelmingly supports this project," Ms Swanson said. "They want the jobs that this will bring."
But shadow energy minister Chris Bowen said the government must "urgently justify its spending" on the plant, and Melbourne MP Josh Burns labelled the project "a load of nonsense".
Nature Conservation Council chief executive Chris Gambian said the government had "once again put short-term political opportunism and the interests of their fossil-fuel donors" ahead of the public interest by announcing the project on the eve of the by-election.
He said the government would be better off investing the money in large-scale battery storage, as South Australia had done.
Newcastle students will rally in Civic Park on Friday as part of the national School Strike 4 Climate protest.
"I was shocked and angry to hear the news this morning," organiser and Hunter School of Performing Arts student Luka McCallum said.
"This short-term planning from our government shows that they do not care about young people."
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