Newport Power Station re-birth

Carl Daley
Carl Daley
Newport Power Station re-birth

Newport Power Station is undergoing a major outage, presumably due to technical requirements and in readiness for a new world energy market. The power station will become more important in Energy Australia's portfolio, given the early closure of Yallourn Power Station. What future role (if any), will Newport play?


Newport Power Station has the largest natural gas steam turbine unit in the NEM and along with Torrens Island in SA, are in a class of their own. Unlike other gas turbines, thermal units like Newport require hours to heat the boiler to create the necessary steam.

Newport was designed as an intermediate power station and commenced operations in 1981, following a controversial start. The plant was originally proposed by the SECV to be a 1,000MW station, but it met resistance from the local community and the Trades Hall Council.

An independent panel was setup and in 1977, the Newport Review Panel concluded that the station should be reduced to 500MW given "the need to conserve natural gas wherever possible" and environmental concerns. Construction was delayed 4-years which cost the community $350m on top of the $194m build cost, said the SECV Annual Report. The surplus second 500MW unit was shipped off to Loy Yang A, and became the odd Unit 2 amongst the 4 Units.

Local community groups were told that Newport would close in 2012 after 30-years of operation, however privatisation overtook events. It would be fair to say that Newport has probably ran less often than envisaged by the SECV, in the 1970's.


The EcoGen ownership journey has been:

  1. Upon privatisation in 1995, Newport was packaged with the Jeeralang gas turbines to form EcoGen
  2. In 1999, US based AES acquired the EcoGen group as part of Victoria's privatisation for $361m
  3. In 2002, Babcock and Brown Power with Industry Funds Management (IFM) acquired the EcoGen assets from AES for $202m
  4. In 2006, Babcock and Brown Power planned to expand Newport by 300 to 400MW in 3 to 5 years but before the year ended, the troubled Babcock and Brown Power sold their 73% stake to IFM
  5. In 2018, IFM sold EcoGen to Energy Australia for $205m

The hedge agreement associated with Newport and Jeeralang was probably the longest off-take agreement in the NEM, although passed through many hands:

  1. When AES acquired EcoGen in 1999, a Master Hedge Agreement was established with TXU Energy which had previously acquired Eastern Energy (SP AusNet’s franchise area) in 1995
  2. Singapore Power then acquired TXU Energy in 2004
  3. In 2005, Singapore Power sold the retail and generation business to China Light and Power (CLP) which then became TRUenergy
  4. TRUenergy acquired the original Energy Australia with the generation assets of Mount Piper and Wallerawang from the NSW Government in late 2010, and then in 2012 re-branded the entire business to Energy Australia
  5. Once Energy Australia acquired EcoGen in 2018, the EcoGen assets became a direct component of the portfolio

Historical Generation

Over the years, Newport had dry runs such as 2010 to 2016, when the capacity factor only ranged between 3.5% and 8.2%. However,  Newport's best run was from 2007 to 2009. What was special about those years, and what can be learnt?

Those with long energy trading memories will recall 2007 was when the coincident drought on the east coast of Australia struck:

  1. hydro power stations water storages dropped to critical levels
  2. coal-fired plant across the NEM became very concerned about the availability of cooling water and changed operations to conserve water
  3. the Queensland government curtailed water supplies to water cooled coal-fired stations including Tarong which cut generation by 70%
  4. the air-cooled coal-fired Kogan Creek Power Station came online, but there was a net reduction in Queenland baseload capacity

In 2007, the market was in a dire and unprecedented situation. For the first year in the market's history the forward price for a financial year pushed through the $80/MWh barrier for all eastern States of the NEM. The strong spot prices in the first half of 2007, along with forward selling activity and low gas prices led to the record run of Newport leading to the record capacity factors from 2007 to 2009 of 41%, 30% and 25% respectively.

In contrast, the 2020 annual capacity factor was 7.6%. The Newport capacity factors for the last 20-years and the prevailing Victorian annual spot price is shown below:

Looking Forward

During the record Newport run of 2007 to 2009 there was sustained higher than average prices that began shortly after the morning peak, and then lasted until about 8:00pm on most weekdays. This long run of consistent prices suited Newport as it provided sufficient notice to heat the boiler, and the long runs favoured Newport over it's Jeeralang stablemate due to a higher efficiency.

The following interactive chart shows the normalised spot prices for 2007 to 2009, and then for comparative purposes, 2020 has been added. The similarity of the 2007 to 2009 normalised price profiles is very striking.

The contrasting year of 2020 is very different, and reflects the growing trends of when compared to the average price:

  1. dark hour prices are rising
  2. daytime prices are falling
  3. evening peak prices are becoming higher and more volatile

This phenomenon of intraday prices changing has continued in 2021 as shown in the chart below for the January to April period over the last 3 years. For each year, prices from midnight to the morning peak are rising towards the average price; daytime prices are softening, moving further away from the average; evening peak prices are becoming stronger; and then after the evening peak through to midnight, prices are increasing relative to the average.

Challenges Facing Newport

There is little doubt that Newport will become more important to Energy Australia's portfolio given the earlier retirement of Yallourn in 2028. However, there are challenges facing Newport.

  1. paying for gas supply for an asset that is unclear how often, and for how long the asset be deployed, could prove costly
  2. as the Variable Renewable Energy proportion continues to increase, firming is without doubt a growing requirement of the NEM. Newport may be able to play a role in firming, but only in certain conditions. There will be days or chunks of days, when the dispatchable generation sector aims to fill the gap caused by calm and cloudy conditions. Such an opportunity will suit Newport, assuming the gas price is appropriate for energy arbitraging
  3. the current trends of the intraday prices is improving Newport's opportunities, but given the price of gas, the current opportunities are limited. The passing of time will allow intraday prices to further evolve and the earlier retirement of Yallourn will accelerate the opportunity for Newport to run through the 'dark hours', that is, beginning from the evening peak through to the morning peak. Energy Australia will want Newport to be ready and re-birthed for these opportunities as they manifest
  4. competition from modern and more efficient combined cycle gas turbines

Post Yallourn closure, Energy Australia's Victorian formula of generation assets is well structured. It will however, be a question of whether the scale is right for the size of the retail book.  Nevertheless, the benefits are that:

  1. the business can hold a short position during the daylight hours when the market becomes flooded by renewables and buy at a price below the cost of dispatchable generation
  2. the planned big battery at Jeeralang will accommodate servicing the FCAS market as well as short price spikes, particularly with 5-minute settlement beginning on 1 October
  3. Jeeralang gas turbines can come online to complement or replace the batteries if they become exhausted, and then continue to run as long as required
  4. Newport can come online to complement the Jeeralang assets, or replace the gas turbines with a lower cost assuming the boiler is reasonably primed

About 25-years ago I had lunch with the EcoGen energy trading team in a Williamstown restaurant and we were debating the merits of an energy only market, versus a capacity market. The options paper just released by the Energy Security Board as part of the Post 2025 review, includes the introduction of a capacity certificate scheme forcing retailers to hedge capacity with dispatchable plant, such as Newport. The former EcoGen team's wish, may be coming true. If so, Newport will stand to benefit.  

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