Casualties of the energy transition highway – market effects of Torrens Island B retirement


As part of Australia’s energy transition, investments are being made to ensure sufficient network capacity to host renewable energy generation, share them between regions, and maintain power system security and reliability. One of the interconnectors being built is Project EnergyConnect (PEC), which will provide 800 MW of transfer capacity between South Australia and New South Wales. Aside from being the first direct interconnection between SA and NSW, PEC is expected to augment transmission capacity in renewable energy zones (REZ) in SA and NSW, improve network transfer capacity between SA and Victoria, and reduce reliance on higher-cost gas plants in SA for dispatchable capacity.

Despite all the benefits introduced by this new interconnector, the expected influx of a significant amount of renewable energy resources will impact the economic viability of existing fossil fuel plants. One generation affected is Torrens Island B gas-fired power station. Currently, one of the four units at this station was mothballed in 2021, and the remaining three units were initially scheduled for retirement in 2035. However, with the plant operating at around 20% capacity factor before PEC becomes operational, AGL has brought forward the closure date to 2026, which coincides with the expected commercial operation date of PEC.

In this Chart of the week, we investigate the effect of the earlier retirement date of Torrens Island B on South Australian energy prices. We have run a sensitivity of our Benchmark Power Curve changing only the scheduled retirement date of Torrens Island B, without any additional capacity installed in the network to compensate for the loss of generation from these plants.

Figure 1 shows the increase in average electricity market price and market price volatility in SA driven by the accelerated closure of the plant and if there is no replacement plant. The chart indicates around an 8% to 19% (12% on average) uplift in average prices from FY2027 to FY2035. The loss of Torrens Island B will also result in an increase of about $20 to $30/MWh in the 95th percentile of prices. This increase in volatility will also result in the increase of extreme peak prices, which should be favourable for battery profits in the future.

The Benchmark Power Curve sensitivity has been run on the assumption that there will be no new capacity to replace the outgoing Torrens Island B despite PEC being present in both scenarios. The reality is that the increase in network transfer capacity in the system is not enough to compensate for the loss of capacity, and we are still expecting a future price uplift will be a signal for the profitability of new investments, particularly for renewables and storage. Based on the average projected dispatch profile of Torrens Island B at 20% capacity factor, a rough estimate of the capacity replacement would be around 600 MW of wind and 300 MW of 4-hour batteries to cover both the peak and off-peak periods.

Torrens Island B is not likely to be the last generator to announce an earlier closure of its facilities. With more interconnectors coming in and more aggressive state renewable energy targets, existing fossil fuel facilities should prepare for their energy transition sooner rather than later.

This study has utilised our Benchmark Power Curve, which provides a high-resolution forecast of electricity prices in the NEM to 2050. For more information on our price forecasts, please get in touch with us at enquiries@cornwall-insight.com.au.

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