An offtake deal to support 1.5GW of renewable capacity, a WA Liberal election proposal, could cost about $230 million a year, industry sources suggest.
The Liberal Party WA's proposal to sign an offtake deal to buy 1.5 gigawatts of solar and wind capacity could cost about $230 million a year, industry sources suggest.
The pledge was the key plank of a promise by the opposition to shift Western Australia's economy towards green jobs.
Government-owned Synergy would shut off its coal generators by 2025, taking about 1.1GW of capacity out of the market, and sign onto a deal to underwrite a privately funded Mid West renewables precinct.
Business News understands a recent offtake for a wind farm in the same region was inked for $45 per megawatt hour.
Wind projects in the region have a capacity factor of around 45 to 50 per cent, which means they produce about half their nameplate capacity over a given period, accounting for variations in wind speed.
That level is higher than most other wind projects around the world, which has previously drawn attention to the Mid West for its green hydrogen production potential.
Shadow energy minister David Honey said he had seen forecasts implying renewable generation would cost about 5 cents per kilowatt hour, or roughly $50/MWh.
Dr Honey said that was cheaper than any other fuel source, according to US modelling by investment bank Lazard.
The Liberal opposition has not offered an estimate of the cost of an offtake deal, but one senior industry source suggested about $7 billion over 30 years, which would imply a cost of roughly $230 million annually.
It’s unclear how many years the offtake agreement would be, and, following international changes to accounting standards, whether it would be registered as a long-term liability on Synergy’s books for its full value.
If so, it would affect the government’s debt level.
Labor election spokesperson Rita Saffioti said yesterday she expected the cost of the proposal would be in the multi-billions.
Either way, if ongoing development of renewable technology brought down spot market prices significantly, Synergy would be holding a contract that was out of the money.
Coal produced about 41 per cent of power used in WA in 2020.
But that is much lower than the east coast National Electricity Market network, which according to Australian Energy Regulator data uses about 69 per cent coal-fired power.
Sparking debate
Yesterday’s promise sparked debate about potential impact on power prices and reliability.
The proposal includes a 500MW battery array and a $500 million upgrade to transmission lines from the Mid West.
Both would receive revenue from their operations.
Dr Honey said 500MW of battery storage would be sufficient to ensure reliability, supported by the flexible gas capacity already available in the system.
Industry sources said at least four hours of capacity would be needed for each megawatt of power in the battery, meaning at least 2GWh (2000MWh) would be required.
For context, Tesla reportedly built the Hornsdale battery in South Australia for a capital cost of $90 million, with 129MWh of storage.
Another industry source, who supported the plan, argued that it would have minimal impact on power prices because coal generators usually do not set spot prices in the South Western Interconnected System, with gas and wind the price-setting marginal producers.
They said the market share of coal was much lower in WA than other states, and the generators were often switched off, which added to their overall costs.
“The coal fields at Collie are poor, the overburden, the strip ratios … it's not a long term viable proposition,” they said.
They believed the 500MW battery array would be enough to keep the network stable, combined with use of the existing gas fleet.
The state’s capacity market, where generators are paid credits to stand available to lift production when demand surges, would incentivise other projects if necessary, they said.
Aside from the price and reliability questions, critics of the plan raised other concerns.
“I wouldn’t put it all in one location, for a start,” one industry source said.
They said the generation assets would need to be distributed more broadly around the network.
They said the closure of the Hazelwood coal power station in Victoria had caused huge problems on the National Electricity Market grid and would similarly destabilise the grid in the SWIS.
