How AGL’s closure of Torrens Island gas-fired power station will affect SA’s power prices and energy stability

South Australia’s government has been quick to reassure residents there will be no negative impacts to the state’s power supply when AGL closes its Torrens Island B gas-fired power station in 2026, a decade earlier than planned.

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

AGL’s announcement also comes at a time when cost-of-living pressures continue to rise and amid predictions of a jump in electricity prices next year.

So what will happen when Torrens Island closes?

What is Torrens Island?

Torrens Island is a long-running gas-fired power plant near Port Adelaide, in Adelaide’s north-west.

The site also hosts the Barker Inlet Power Station, capable of operating at full capacity within five minutes to provide a rapid response to changes in energy supply, and will eventually house an under-construction 250 megawatt grid-scale battery.

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

Two power stations with smoke stacks next to water with causeways to them
AGL’s Torrens Island, which is home to a gas-fired power station.(ABC News: Che Chorley)

Why is the gas-fired B station closing?

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

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

“The decision to build the connection was made on the basis that overall the economics of this 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 had been “struggling for years” with an increasingly smaller share of the market.

“It was entirely foreseeable that this generator was going to go sooner rather than later,” he said.

Head shot of electricity industry researcher, Bruce Mountain, sitting in front of a blurry office background
Energy expert Bruce Mountain said closing the gas-fired station and bringing in storage capacity was good for energy prices and stability.(ABC News)

Professor Mountain, the director of the Victoria Energy Policy Centre, said Torrens Island’s gas generation had an important role when South Australia’s interconnector with Victoria goes down, and as a support to wind and solar power generation, which currently makes up more than 60 percent of the state’s electricity supply.

“It does have a back-up role but it actually performs that role poorly, which is part of the reason it’s being closed,” he said.

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

“We’re getting closer to the idea of ​​a better connected grid that allows supply to come from across the country,” he said.

“So wind, sun, hydro and other resources from across the country can be mixed and matched depending on when the best power is being produced.”

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

Will power prices go up?

Mr. Mountain thinks the opposite is likely to happen.

“I think it’s more likely to lead to their power prices going down,” he said.

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

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

“So, by taking out that expensive generator and bringing in storage capacity … the clearing price that will be achieved in the market is likely to be lower,” he said.

Mr. Mountain also does not believe the closure will lead to increased power outages.

“Getting rid of Torrens Island and in its place getting storage is going to be a better solution for energy stability,” he said.

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

Energy Minister Tom Koutsantonis said the state would have “ample” electricity supply once the power station closes, because by then the state would have two interconnectors operating.

South Australians will pay a little more in the meantime though, due to a multi-million dollar deal between AGL and the state government to ensure the B unit remains operating until the interconnector with New South Wales is built.

That deal will cost every South Australian with an energy connection $2.70 extra per year until 2026 for the maintenance and refurbishment of Torrens Island’s B2 unit.

Mr Koutsantonis said the $19.5 million deal was a result of advice from the Australian Energy Market Operator (AEMO) to avoid a shortfall in supply.

“”The AEMO advice to me was pretty clear: unless that unit remains on, if we get heatwave conditions in South Australia, we would be short,” 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 “get on with the transition”.

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

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