The Turnbull government will seek expert advice on AGL's new electricity generation plan after the energy giant rebuffed the government and confirmed it would close its coal-fired Liddell power plant.
The company believes it can meet the energy shortfall and reduce emissions through a multi-phase development of gas, wind and solar plants, while proceeding with the long-slated closure of Liddell in 2022.
Prime Minister Malcolm Turnbull, who has made electricity supply and power prices a key electoral issue, had implored AGL to consider extending the life of the ailing power station or find a willing buyer.
He said yesterday AGL's plan was "not at all" a rebuke of the government and it will be assessed by the Australian Energy Market Operator by mid-February.
The government has now all but accepted Liddell's closure, with Mr Turnbull on Saturday acknowledging AGL had "a plan which they say will meet [the] gap" in electricity supply caused by the recent closure of Victoria's Hazelwood power station and the eventual decommissioning of Liddell. The plan will be assessed by the Australian Energy Market Operator by mid-February.
Energy Minister Josh Frydenberg noted replacing Liddell was always an option open to AGL alongside maintaining or selling it. In an interview with Fairfax Media on Friday, before the company's announcement, he said his "overwhelming focus has always been ensuring we are not left 1000 megawatts short of dispatchable power in the system".
"Our responsibility is to be technology agnostic but focus on the reliability and affordability outcomes from AGL's plan post-Liddell," he said.
AGL said an independent analysis had found keeping the ageing station open for just five more years would cost almost $1 billion. Splitting the plant from surrounding infrastructure and selling it was also unfeasible, the company said.
Instead, AGL will look to generate 1600 megawatts from renewables, 500 MW from a new gas power plant, 250 MW from a gas plant slated for Newcastle and another 250 MW from a battery on the Liddell site. It is also exploring the feasibility of a pumped hydro project in the Hunter region of NSW.
AGL's view is that the plan, alongside the seven-years' notice for closing Liddell, will not adversely affect power prices. Altogether, it expects to produce power at a cost of $83 a megawatt-hour, compared to $106 if Liddell's life was extended. The company said the new portfolio would also reduce its carbon footprint by 17.6 per cent.
"This plan demonstrates that old power plants can be replaced with a mixture of new, cleaner technology, while improving reliability and affordability," said AGL chairman Graeme Hunt.
"Decisions for the investments are staged to enable flexibility to respond to the changing needs of the market and improvements in technology over the next five years."
AGL said the first stage of its generation plan, requiring $490 million in capital expenditure already approved by its board, aligned with the Turnbull government's National Energy Guarantee to maintain electricity supply and prevent blackouts.
The Grattan Institute's energy expert Tony Wood said the announcement was "hardly a surprise and fits in perfectly with the recommendations of the Energy Security Board" and chief scientist Alan Finkel's recent energy review.
"That sort of combination is where Australia is heading - a combination of storage, renewable energy and batteries. And gas has a role to play in the transition," he told Fairfax Media. "It was never going to make sense for Liddell to be replaced with another coal-fired power station."
Business Council of Australia boss Jennifer Westacott also praised the proposal as innovative, secure and environmentally sound.
Kelly O'Shanassy???, chief executive of the Australian Conservation Foundation, said the Turnbull government's attempt to "strongarm" AGL into keeping Liddell open had failed, and the government should now "drop its obsession with coal".
"What we need is a strong, comprehensive plan that would speed up the retirement of polluting coal plants and accelerate the transition to clean energy," she said.
With Nicole Hasham and Mario Christodoulou
