Recently in the news, there has been some concern that the closure of the Liddell power station in NSW will be a repeat of what we witnessed in 2017 with the closure of Hazelwood. Hazelwood’s closure led to higher prices, particularly over summer peak demand periods1.
This is a poor comparison when you take into account that the closure of Liddell has been on the horizon for seven years, a stark contrast to the closure of Hazelwood with just seven months’ notice. This additional time has allowed the market to respond proactively with further build-out of renewables as well as the new Tallawarra B Project. This 440MW gas plant is scheduled to be operating in time for this summer. However, NSW is still behind in the build-out of batteries, hindering the ability for solar to contribute during peak demand periods, while wind intermittency opens the door for vulnerabilities in supply.
It’s also important to understand that the closure of the Liddell power station may not be as significant of a loss as it may seem at first glance. While the original generating capacity of Liddell was 2000MW, the closure of unit LD03 last year and the underutilisation of the other three turbines, which operated at much less than their registered 500MW capacity, resulted in Liddell operating more like an 800MW generator over the past year.
To correctly identify the concerns of high prices, it is critical to investigate what happens during periods of highest demand. High demand periods are in summer afternoons when the solar can no longer generate, and demand reaches its intraday maximum. An example was during the recent NSW when Sydney temperatures reached 36 degrees on March 16, sending afternoon demand soaring. Over the evening peak, the average demand was 10.7 GWh with an average price of $1,977/MWh.
A comparative analysis was conducted using price trends from Cornwall Insight Australia’s latest NEM Benchmark Power Curve (BPC) to assess the potential impact of the Liddell power station’s closure on peak price periods during the upcoming summer. In our Chart of the week, we have plotted the previous three summers (when the demand has made up a significant portion of the installed capacity) alongside our 2023-24 summer BPC forecast, both at peak evening periods.
There is a correlation between the estimated remaining reserve and high prices; however, it doesn’t account for units that are not generating for several reasons, such as planned or unplanned outages, line outages and wind turbines during periods of low wind. Resultantly, we see the price approach or even reach the market price cap with moderate amounts of the estimated remaining reserve.
In conclusion, after the closure of the Liddell power station, it is expected that average prices during peak periods in NSW for the upcoming summer will increase compared to the previous three years. Although there may be more high-price events than previous years, the BPC forecasts a lower median price. It is important to note that some of this cost increase may be attributed to replacing coal with a more expensive fuel type, gas, for electricity generation.
This scenario highlights the potential benefits of battery energy storage systems (BESS), which can mitigate the impact of high prices, complement existing solar resources to take advantage of high evening prices or generate revenue through energy arbitrage.
Cornwall Insight has Storage Investment Models that provide in-depth revenue forecasting and optimisation services. In addition, we have NEM market models based on market-validated assumptions and sound power systems principles. For more information on the energy market and power systems modelling or other bespoke consultancy products, please contact email@example.com.
1 Summer peak periods are defined as December, January, and February, with a time of day from 5 pm to 9 pm.