The problem is,the state government cannot afford to let Loy Yang A close prematurely. Even after factoring in the slew of existing and committed energy projects in the pipeline,AEMO modelling has suggested Victoria could face power reliability gaps as early as 2024,with more serious breaches possible from 2028 onwards.
Worries about the vulnerability of the gridprompted a secretive agreement between the state government and Loy Yang A’s owner,energy-giant AGL,reached in August last year.
Under the deal,AGL provided a guarantee that Loy Yang A would be available to supply the grid with a steady pulse of energy for another 12 years. But in return,Victoria agreed to shoulder an undisclosed chunk of the financial risk if the business encounters problems before 2035,including the possibility that cheaper renewable energy renders the ageing plant financially unviable.
The binding agreement effectively means AGL and Victoria must collaborate to guarantee the “orderlyclosure” of Loy Yang A by June 30,2035. That followsthe announcement by AGL in September 2022 that it was bringing forward the closure date of Loy Yang A by a decade.
Grid expert Tim Buckley,director of Climate Energy Finance,said that when you had 30 per cent of Victoria’s power generation centred on a single,ageing facility,“you have a real concentration of risk”.
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“The idea that Loy Yang A is going to be operational 10 years from now is really remote,” Buckley said. “The engineers say it has a 40-year life asset. Forty years is next year,so any year beyond 2025 is a bonus year.
“So we have critical point reliance on something that already next year reaches its end of useful life and we’re banking on it being held down for another decade. It’s already unreliable.”
Victoria Energy Policy Centre director Bruce Mountain said the condition of Victoria’s remaining coal-fired generators was not well known,including Loy Yang A,the youngest of the three. This,he suggested,made it difficult to assess whether it could reliably operate for another decade.
“Even if the government knew,they wouldn’t tell everyone,” Mountain said.
“When the last major closure occurred in 2017 of Hazelwood,suddenly they felt free to speak about what a complete basket case it was and how it was failing health and safety requirements,but no one speaks publicly about the real condition of these coal generators.”
Mountain said the government had little choice but to back Loy Yang A for another decade.
“Frankly,the build-up of wind and solar is not quick enough,and the storage capacity needed to ensure supplies is not large enough.”
UNSW energy expert Dylan McConnell said the risks facing the grid were increasing as Victoria’s remaining coal-fired generators aged.
But he said the system had been designed to manage those risks using new forms of generation,transmission and storage.
“Ideally,and we have other resources,whether that’s batteries,whether that’s gas ... we have reliable emergency reserve mechanisms,so that if things do go than hopefully the system manages.”