On 29 May 2023, AEMO published a conclusions report on the VNI West Project. According to the report, option 5A (a variant of AEMO’s preferred option in a previous consultation paper) is preferred for VNI West. In option 5A, the transmission line crosses the Murray River north of Kerang (Wamba Wamba Country) instead of near Echuca, which was initially proposed in option 5. Option 5A has now been accepted by the Victorian government.
Although option 5A has several advantages, such as harnessing more renewables and lesser environmental effects, it results in some notable changes in coal generation. Namely, according to the conclusions paper, coal generation will increase during 2030-2033 by ~1 TWh a year.
In this Chart of the Week, we discuss how this increase in coal generation (due to VNI West development) might justify a delayed retirement for some coal generators.
Figure 1 below shows the annual coal generation outlook in NSW (based on 2022 Integrated System Plan (ISP) assumptions), available coal capacity in the state, and the time window that represents the required additional coal generation as a result of VNI West development (~1 TWh a year between 2030-2033).
As seen in Figure 1, Eraring will be retired well before 2030, and Bayswater will be retired in 2033. As a result of Eraring’s retirement, there will likely be some response by coal in NSW to meet the state’s energy needs. Therefore, with the additional required coal generation between 2030-33 (yellow window in the figure), it could be an incentive for Vales Point, and probably Bayswater, to consider delaying their retirement as this additional generation might also result in a change of capacity factor for the remaining coal in NSW.
The estimated additional coal generation during 2030-33 due to VNI West development accounts for ~6.5% of the annual expected total coal generation during the time. While this additional coal generation will be dispatched between all coal generators, it still represents an incentive for Vales Point not to leave the game for another couple of years if there is a significant enough increase in NSW prices as a result of this increased export requirement into VIC and the percentage of this additional TWh of generation that it can capture.
Currently, NSW is currently lagging against its energy transition targets. Although the allocation of long-term energy service agreements (LTESAs) in the state can speed up the process, NSW is still vulnerable to coal retirements, at least price-wise. If the transition continues to lag against the expected target, the volume of generation that may be required to be satisfied by coal could be larger. Therefore, it will be interesting to see how this forecasted increase in coal generation could incentivise Vales Point to delay its retirement.
Another point to consider is that the increase in the required coal generation as a result of VNI West planning might not reflect the most efficient solution for emissions reduction. Energy Ministers have agreed to fast-track the introduction of an emissions reduction objective into the three national energy objectives. Although the final bill on the integration of emission reduction objective is not effective yet, it is in question if the new law can accommodate the expected increase in coal generation between 2030-33 through other planning functions.
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 Figure 11 in the conclusions paper shows the changes in generation output with Option 5A VNI West.