AGL AGL Energy Limited

   By Robb M. Stewart 
 

MELBOURNE, Australia--Plans by one of Australia's largest utilities to phase out coal-fired power stations is running up against a government supportive of the fuel and eager to counter the threat of blackouts by extending the life of the company's oldest plant.

Under pressure from Canberra to run its Liddell plant in the coal-rich eastern Hunter Valley for five years beyond the slated 2022 closing date or sell it to another operator, AGL Energy Ltd. (AGL.AU) Chief Executive Andy Vesey said he had agreed to take the government's request to his board.

He also committed to delivering to the government in 90 days alternative action the company would take to avoid a power shortfall when Liddell reaches the end of its scheduled life. Prime Minister Malcolm Turnbull said that while all options would be considered by the government, the most obvious one was to keep the station running for longer.

"AGL's management want to look after their shareholders. For them, scarcity of energy is good because it enables them to raise prices. It's not good for the Australian people," Mr. Turnbull said Tuesday.

Tension between the company and the Turnbull government highlights the contrast between Australia's vast resources of both coal and natural gas and looming threats of shortages and jumps in prices for businesses and households. Earlier in the year, the government introduced new powers to curb exports of liquefied natural gas from big plants on the east coast if it finds there's a threat of a gas-supply shortage in local markets, even as the country is set within a few years to overtake Qatar as the world's biggest LNG exporter.

The Australian Energy Market Operator, which runs much of the country's gas and electricity markets, earlier this month warned of a tight electricity market in the southeast following the recent closure of Engie SA's (ENGI.FR) coal-fired Hazelwood plant. It projected the need for 1 gigawatt in baseload capacity for populous New South Wales and Victoria states to replace Liddell.

Coal accounts for more than 60% of the country's electricity production, down from more than 80% at the beginning of the century, according to government data.

The decline in coal use comes amid strong growth in wind and solar projects. Sustainable Energy Research Analytics, a consultancy, estimated there are about 311 megawatts of solar power now in operation in Australia, 1 gigawatt under construction and a further 6 gigawatts in advanced stages of design. However, without massive storage, renewable energy doesn't meet the government's call for more on-demand baseload electricity.

Mr. Turnbull, who has long promoted the construction of new, cleaner-burning coal plants, recently laid out plans for an expansion of the Snowy Mountains hydro-electricity project, which would add 2 gigawatts of power to the market, but not until after Liddell is set to close.

AGL has committed to closing each of its coal-fired plants when they reach the end of the operating life, a process set to run through 2050, replacing the capacity through gas-fired plants, pumped hydro and batteries, in addition to wind and solar generation.

Mr. Vesey said that in the near term, new development favored renewables supported by gas, a trend expected to continue over the longer term as large-scale battery systems support renewable technology. "In this environment, we just don't see new development of coal as economically rational, even before factoring in a carbon cost," he said.

Liddell's four generation units were commissioned between 1971 and 1973, supplying enough electricity a year to power more than 1 million homes. But as they age unplanned outages are expected, Mr. Vesey said.

Since buying the plant in 2015, AGL said it had invested 123 million Australian dollars (US$98.8 million) and it intends to spend a further A$159 million before it closes, yet Liddell still contributed to blackouts in New South Wales earlier this year when two units went down due to boiler leaks.

Delta Electricity, which owns the Vales Point coal station in New South Wales, said it would consider buying Liddell but that it would need to know the condition of the plant and the cost of maintaining operations. Any buyer would also be faced with rehabilitation costs when the plant does close, a figure AGL has estimated at A$898 million for the Liddell and neighboring Bayswater coal-powered station.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

September 12, 2017 00:43 ET (04:43 GMT)

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