• Updated Jun 6 2016 at 5:44 PM

AGL Energy keeps SA gas-fired power open to avert 'pain'

In June AGL Energy reversed plans to mothball four ageing gas turbines at Torrens Island in Adelaide
In June AGL Energy reversed plans to mothball four ageing gas turbines at Torrens Island in Adelaide Bryan Charlton
by Ben Potter

AGL Energy has reversed a decision to mothball four ageing gas turbines at Torrens Island in a bid to maintain reliable power and stable prices in South Australia's heavily wind and solar-driven electricity market.

The decision by AGL not to shut down the four ageing gas turbines comes just a month after West Australian retailer Alinta admitted defeat in South Australia's tricky market and closed its Northern and Playford B coal-fired power stations.

Alinta's withdrawal left the struggling state's electricity market dependent on solar and wind power for more than 40 per cent of its generating capacity, with an interconnector to Victoria's brown coal power stations covering only about a quarter of demand.

Reliable supply

South Australian electricity Futures prices are higher than in the eastern states
South Australian electricity Futures prices are higher than in the eastern states ASX Energy

AGL's reversal on Torrens Island preserves about 180 jobs and is a win for the Labor state government of Jay Weatherill, whose big leap into renewable energy exposed it to charges that it had moved way ahead of the grid's capacity to maintain a reliable supply.

The government still has to ensure the grid can provide reliable and affordable electricity for industrial users such as stricken steelmaker Arrium and Nyrstar, the Belgian metals company redeveloping the Port Pirie smelter at a cost of more than $500 million. 

The SA government is underwriting a large part of the investment in both cases, and electricity prices will be a key determinant of their viability.

AGL chief executive Andy Vesey said two weeks ago at Energy Networks 2016 in Adelaide that "South Australia – with all compliments to policy here – has driven way out on carbon abatement".  

"You are having impacts here which I think you can work through, but there's a lot of pain here in this market," Mr Vesey said. 

South Australian electricity futures frequently trade in the $80-90 range
South Australian electricity futures frequently trade in the $80-90 range ASX Energy

The decision affects the four older gas turbines known as Torrens A, with a combined capacity of 480 megawatts, just over a third of the Torrens Island complex's combined 1280-megawatt capacity. 

AGL announced in December 2014 it would close these turbines by 2017, because gas-fired power was being pushed out of the National Electricity Market by wind and coal, which have a cheaper marginal cost of production. 

Energy market volatility

Electricity for delivery in 2017 and 2018 in South Australia costs $85-90 a megawatt hour on the ASX Energy futures market, compared to $46-52 in Victoria and NSW and about $62 in Queensland. 

SA Treasurer and energy minister Tom Koutsantonis said, "Gas fired generation complements renewable power by providing flexible generation to cover periods when the wind is not blowing and the sun is not shining.

"The continued operation of Torrens Island Power Station should help to provide capacity for contracting with customers in South Australia, including Nystar."

Mr Koutsantonis said last month actual prices often turn out lower than futures prices, citing prices of less than $50 in the March quarter of 2016, compared to futures prices of about $80 in November 2015. 

"South Australia faces challenges around energy market volatility, but is meeting those challenges through investment in greater interconnection with other states and support for innovation in large-scale battery storage to complement renewable energy, which this state has in abundance," he said.