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What will happen to SA’s electricity prices and energy stability if AGL closes its gas-fired power plant on Torrens Island?

The South Australian government has been quick to reassure residents that there will be no negative impact on the state’s electricity supply if AGL closes its Torrens Island B gas-fired power station in 2026, a decade ahead of schedule.

Energy stability has been a concern for many South Australians after thousands of homes were without power for days and the state was recently disconnected from the national energy grid as a result of widespread storm damage.

AGL’s announcement also comes at a time when pressure on the cost of living continues to mount, and amid forecasts for electricity prices to rise next year.

So what will happen when Torrens Island closes?

What is Torrens Island?

Torrens Island is a longstanding gas-fired power station near Port Adelaide in north-west Adelaide.

The site is also home to the Barker Inlet Power Plant, which can be operated to full capacity within five minutes to respond quickly to changes in power supplies and will eventually house a 250-megawatt grid-scale battery under construction.

AGL’s chief operating officer Marks Brokhof said the energy giant is moving towards making the island a “low-carbon energy hub”.

AGL’s Torrens Island, home to a gas-fired power plant.(ABC News: Che Chorley)

Why is the gas-fired B station closing?

AGL said the plant was losing millions of dollars and the June 2026 date of closure coincided with the planned completion of the state’s interconnector with New South Wales.

Tony Wood, director of energy programs at the Grattan Institute, said the interconnector with NSW would eventually bring power to the state that via Torrens Island “may be cheaper than what AGL can supply”.

“The decision to go ahead with the link was made on the basis that the overall economics would be better and the reliability of the system would be better,” he told ABC Radio Adelaide.

Energy economist Bruce Mountain said the gas-fired power plant has been struggling with a shrinking market share “for years”.

“It was absolutely foreseeable that this generator would fail sooner rather than later,” he said.

Headshot of Bruce Mountain, researcher in the electricity industry, seated in front of a blurred office background
Energy expert Bruce Mountain said closing the gas-fired station and providing storage capacity would be good for energy prices and stability.(abc news)

Professor Mountain, the director of the Victoria Energy Policy Centre, said gas generation on Torrens Island would play an important role if the interconnector between South Australia and Victoria fails and in support of wind and solar power generation, which currently accounts for more than 60 per cent of the state power supply.

“It has a backup role, but it actually performs that role poorly, which is one of the reasons for the closure,” he said.

South Australia Conservation Council chief executive Craig Wilkins said he supports AGL bringing the closure forward.

“We’re getting closer to the idea of ​​a better connected grid, allowing for coverage from across the country,” he said.

“This allows wind, solar, hydroelectric power and other resources from across the country to be mixed and matched depending on when the best power is being produced.”

Wind Turbines on Hills.
Wind farms generated about 40 percent of SA’s electricity in 2020-21.(ABC Adelaide: Spence Denny)

Will electricity prices rise?

Mr. Mountain believes the opposite is likely to happen.

“I think it’s more likely to cause their electricity prices to go down,” he said.

“Because Torrens Island is a gas-fired generation, it typically sets the clearance price in South Australia 10 to 35 per cent of the time.”

Mr Mountain said it was a “very expensive generator” that usually sets a high price.

“By shutting down this expensive generator and bringing in storage capacity… the clearing price realized in the market will likely be lower,” he said.

Mr. Mountain also doesn’t think the closure will lead to increased blackouts.

“Getting rid of Torrens Island and storing it in its place will be a better solution for energy stability,” he said.

A view of the Adelaide CBD skyline with trees and rooftops in the foreground and cloudy skies above
The Government says the closure of Torrens Island will not affect Adelaide’s electricity supply.(ABC News: Che Chorley)

Energy Secretary Tom Koutsantonis said the state will have “sufficient” electricity supply after the plant closes, as the state would have two interconnectors operational by then.

However, South Australians are paying a little more in the meantime, as AGL and the state government struck a multi-million dollar deal to ensure the B unit remains operational until the interconnector with New South Wales is built.

This deal will cost every South Australian with an electricity connection an additional $2.70 per year through 2026 for the maintenance and refurbishment of Torrens Island’s B2 unit.

Mr Koutsantonis said the $19.5 million deal was the result of advising the Australian Energy Market Operator (AEMO) to avoid a supply shortage.

“AEMO’s advice to me was pretty clear: if this unit didn’t stay on, we were going to be short on heatwaves in South Australia,” he told ABC Radio Adelaide.

However, Mr Mountain said the state government’s subsidy deal was “a political failure” and a lesson for the rest of the country to “proceed with the transition”.

“It was entirely predictable that this generator would fail sooner rather than later, so I think more could have been done to anticipate this,” he said.

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