By Tom Major

May 9, 2023 - A recent surge in electricity prices in Australia's New South Wales region following the closure of the 2,000MW Liddell coal-fired power plant highlights the strain facing the power market, according to the opposition Liberal party.

This has raised prospects of gas and power price hikes as the country plans to close several high-output coal power stations without immediate replacements.

The Liddell plant closure on 28 April led to the average wholesale electricity price in NSW surging from A$96.40/MWh ($65.36/MWh) over 22-28 April to A$170.74/MWh in the week following the shutdown from 29 April to 5 May. The Australian Energy Market Operator (Aemo) has since issued three lack of reserve (LOR) level 2 notices for NSW, indicating a lack of adequate supply reserves. LOR3 is the level at which load-shedding may commence because of a lack of response from power generators.

The loss of coal-fired supply comes as gas prices in Australia remain at all-time highs on the back of strong demand for electricity generation. Consumer price index (CPI) data for January-March released last month showed domestic gas prices in March rising by 26.2pc on the year, the largest year-on-year jump recorded for the period by Australia's Bureau of Statistics. Gas prices are predicted to remain at historically high levels until at least next year, with energy prices contributing to about one-third of Australia's 7pc inflation rate.

As winter approaches for southern states, the AWX — the Argus assessment for next-month gas deliveries to Wallumbilla — rose by A$2.50/GJ from the previous week to A$17.167/GJ for June deliveries on 5 May. The AVX, Argus' assessment for month-ahead spot deliveries to Victoria, was A$3.33/GJ higher from the previous week at A$18.833/GJ.

Liddell is the first of three major power stations, with a combined capacity of 5,880MW, that are set to close by the end of the decade. The federal government plans to replace the lost capacity with renewable sources, a new gas-fired generator at Kurri Kurri and the troubled 2,000MW expansion of the 4,100MW Snowy hydropower scheme.

The federal government recently announced that a price cap on gas would continue for another two years in a bid to curb household bills, a measure slammed by the Australian Petroleum Production and Exploration Association as likely to slash investment in the profitable LNG sector. The gas-led recovery policy announced by the former government has been shelved by the new Canberra administration because of concerns about Australia's greenhouse gas emissions and new rules surrounding gas development that are likely to affect new projects.

The federal government will spend A$1.5bn on a power bill relief as part of budget measures designed to soften the impact of rising electricity prices. This will be matched by Australia's state governments and applied as a direct subsidy of around A$500 to 5mn households and 1mn small businesses. The government has not signalled any ongoing relief, but the inflationary cycle is expected to last until 2027, according to government agency the Commonwealth Scientific and Industrial Research Organisation.