Listen & Read – Ross Greenwood conversation with Matthew Warren CEO, Australian Energy Council about the closure of Liddell Power Station.
Liddell closure – is our power at risk?
Ross Greenwood: Over the past few days we’ve told you a lot about coal-fired power stations, about a lot of the shortages in electricity that is likely to hit us this summer in particular. But then on top of that also about what happens with the Liddell Power Station. As you may have heard during the news today, the federal government today has rejected calls to remove GST from power bills, saying states would either demand compensation or something would happen. In the meantime also, the ANZ today has said it would not be likely to finance any deal for somebody that wanted to buy the Liddell coal-fired Power Station if AGL were to sell it. Now, we told you here on the program there’s been two conflicting reports about this.
On one hand, the treasurer last night said he was in the room when Andy Vessey, the Chief Executive of AGL Energy, said that he was prepared to sell the Liddell Power Station. But Andy Vessey subsequently tweeted that it’s not going to be sold, it’s going to be closed. That’s it. Full stop. End of story. But of course, the hole in the electricity market is going to continue to be there, and of course, that means that there’s a grave risk to those who use that electricity; you at home, but business in particular. Let’s now go to the man who represents many of those energy users in Australia, the Chief Executive of the Australian Energy Council, Matthew Warren is on the line right now. Many thanks for your time Matthew, as always.
Interview with Matthew Warren, CEO, Australian Energy Council
Matthew Warren: Evening, Ross.
Ross Greenwood: Just take me to the whole point about the problem that confronts many of your members when it comes to their energy usage and the reliability of their supply into this summer and then even over the next 18 months or so.
Matthew Warren: We’ve known for a long time, that ever since Hazelwood were going to close, we’ve known that there was a potential supply crunch this summer. Because if you’re going to build a new coal-fired generator, it’s at least seven years to get that to market and other generators like gas, the base load generators take a few years as well. It’s a slow moving target and this is no surprise. What we do before any summer anyway, is make sure that all the available generation is ready to go and we try and do everything to avoid there being any faults or outages and maintenance is brought up to speed. So-
Ross Greenwood: Can I just maybe raise one thing with you on that, just a little aside, because when that very bad day occurred last summer, when the power for a period of time was cut to the Tomago aluminium smelter in the Hunter Valley, what occurred, as I understand it, on that day was the Liddell Power Station was actually down for scheduled maintenance. What we’ve heard from Origin Energy, the Chief Executive, and also Energy Australia, is both of them had said they are gravely concerned about the electricity grid this summer. I would like to think that everything goes right, that in fact, you don’t have, as you were talking about here, any unforeseen outages because I would say that could cause real problems for the electricity grid if that were to occur.
Matthew Warren: Completely, I mean, there were some– what the challenge Ross is, and I think we’re thinking hard about how we deal with this matter is– one of the big problems that day in February, early this June in New South Wales was one of the new power stations tripped when it was brought on. One of the gas base load power stations coming on and it basically blew a fuse and switched off. Now, we’re thinking about how we might change the way we bring units on so that we avoid those risks so we’ve got a much more secure grid on those days. But that’s right. We need everything to work well to avoid the risk of supply shortages and blackouts this summer. We’ve been working on it and there are a lot of people doing a lot of things to try and make sure everything works.
Now, that’s separate from the discussion about Liddell and the future of that and all the gas and coal-fired generators, and the sense that they’re two separate issues. But we obviously need to think about how we maintain security into the future.
Ross Greenwood: Okay. Let’s go to that term that the Prime Minister used last night, dispatchable energy. In other words, there’s some forms of electricity that can be basically bought on at a moment’s notice. Now, I’ve seen a great documentary of the UK power grid and they would c, ll, say for example, hydro schemes in Scotland. They can bring that almost instantaneously by opening up the flood gates, water rushes down, and as a result, you get immediate energy coming into the grid or electricity coming into the grid. The problem is as he points out, that you don’t have that same ability with solar or wind. Because if the wind’s not blowing, if the sun’s not shining at that time, you can’t immediately just flick a switch and have that electricity come on stream and pushed into the grid if there are problems if something goes out. That’s the problem isn’t it?
Matthew Warren: That’s right. The Hydro’s the dream team. If you could have hydro everywhere, you would because, to your point, it’s got no emissions risk, you can switch it on at a moment’s notice. It’s a great technology, but we just don’t have enough hydro and there’s not really any more to get. The thing with coal-fired generators is of, course, they take– they’re like a combustion heater in your house. They take time to fire up and time to get online, but normally we know when the peaks are coming so we have all the coal on and ready to go. Gas peakers are then– they’re the next line so you bring gas generators on and they’re both peaking and base load gas generators, they can start faster on the proviso and we saw this in South Australia last year, that they’re known recently. If a power station hasn’t been on for a while, it needs extra time to get on.
Ross Greenwood: Just explaining that to people, it’s a bit like my gas hot water at home. I can actually turn on the hot water tap, but unlike say for example, having the hot water sitting in the tank, it actually takes a bit of time to get through the pipes to actually work its way through. Once I’ve got it, it’s on continuously, and it’s there for as long as I’ve got the tap on.
Matthew Warren: The riskiest time for– and this is what we’re thinking about now, we’ve talked to the Market Operator the riskiest time on a hot day is the time you’re switching on these extra power stations. We’re thinking about how we might do things differently to bring them on earlier so that we’ve avoided that risk, and everything is available and we’ve managed to grid slightly differently with– we’re in discussions to see if we can make a smarter change in that.
Ross Greenwood: All right, tell me– something else I was going to say to AEMO, the Australian Energy Market Operator, when it said the other side that we need a change in attitude in regards to the demand side. I would have thought that, say, for example, if I’m running a big smelter or something along those lines, I need the demand. I’ve got to work that business 24/7. I can’t certainly say, it’s going to be a hot day tomorrow. I can actually afford to have less electricity running through here. It doesn’t work like that with industry. If I’m actually running a chicken shop, I can’t say, well, it’s going to be very hot tomorrow. I’ll cook half the chickens in half the time. That’s not the way the way the world works, I wouldn’t have thought.
Matthew Warren: It depends. Actually with large industrial customers like aluminium smelters, normally most of them as part of their conditions of their very cheap supply, is with the right notice period they can turn down or turn off their operations. They need time because the way those pot liners work, the way they make aluminium is you can’t interrupt that half way. It’s actually in their interest. If there’s a supply risk on the day, they want don’t want to have to be half-baked making their aluminum. That’s part of the reason for those contracts. That’s with large industrial customers, that’s quite common. What we’re looking at now, is seeing how many days for the un abetting order we can get. Because there are some businesses you’re right, like a shopping center. It’s demand isn’t going to change on a hot day. It’s going to increase because it’s very high– high temperatures their air conditioners and their fridges very hot. But there are some business where they– that’s a great deal for us. We’ll get some really good money back for not using power on the day. It’s hot, so we send the guards home anyway. We’ll look at that. Now, I think that process of discovering businesses and household to have the opportunity to switch it and switch off is a really useful thing that we’ll look at in the future.
Ross Greenwood: In other words, what you’re saying is if a business were able to say, it’s way too hot, we’re not going to work on this day anyway. As a result, the energy we would have consumed, we can put back into the grid and we might actually get something back for that which could help compensate for not working that day, that might be another way to think about the whole thing?
Matthew Warren: The Market Operators already contracted I think about a thousand megawatts of what we call that demand response. Now, what we’ll find out on those hot days, so they’ll get money for signing the contract, and then they’ll get money on the day if they turn their demand down as contracted.
Ross Greenwood: Okay. Just a final one for you Matthew before we get to that, the Liddell Power Station. Should it be closed? Should the government try and keep it open? What is your own particular opinion about that Liddell Power Station?
Matthew Warren: Look, it belongs to AGL, and I think what frustrates us, it’s an old power station. We liken old power stations to old cars, and they’re actually pretty similar but just larger scale. These power stations are vast vast bits of technology. There are critical pieces in there, particularly the boiler. The boiler is the core of the power station. There’s other bits like transformers, and routers and things which transfer that heat into electricity. But the boilers are things you can’t replace. They’re like the engine block in a car. Not all power stations are the same. They’re all built different times, using different technology, and they’re being worked differently. When Liddell was initially built, and it was built by the New South Wales government back in the ’60s, there was an enormous demand for electricity at the time. It was working incredibly hard in it’s first years.
Just like a car, when you’ve gone ballistic in a car you say it has been hammered really hard earlier in it’ life. That it takes how long you can run that for. AGL has made the petition but it can’t keep investing in that asset past 2022 because the costs of throwing money at it aren’t worth what they get back. They will discuss with the federal government on Monday whether there’s anything they can do with them.
What we’ve proposed to adjust is, it may be very useful to try and extend the life of coal fire generators to maintain security in the grid. That’s a smart thing to do and it’s cost effective but we don’t have a plan as to how we’re going to do that. We don’t know what the other options are that we could do instead of that. What’s frustrates us is, let’s have a plan and then we can decide which power stations are the best ones to keep on and what the terms and conditions of keeping them on are and then everyone knows what they’re dealing with, and then we get on and do it.
Ross Greenwood: I’ll tell you what, great to have you on the program as always. You always talk so much common sense and from a knowledgeable point of view, I bet what’s actually happening inside many of those power stations as well. The Chief Executive of the Energy Council, the Australian Energy Council is Matthew Warren. Matthew, as always, we appreciate your time.
Mathew: Thanks Ross.