Snowy Hydro pushes gas power ambitions with major storage deal

Angela Macdonald-SmithSenior resources writer

Jul 14, 2024 – 12.07pm

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Snowy Hydro has struck a 25-year deal for the storage of gas, providing a government-backed contract to underpin an expansion of the east coast’s biggest gas storage plant.

The agreement with the Iona gas storage facility in Victoria underscores Canberra’s expectations that the fossil fuel will remain part of the energy mix past 2050. The plant, near Port Campbell, plays a critical role in keeping gas supply reliable to the east-coast energy market, particularly during periods of high demand.

Iona is operated by Lochard Energy, owned by the Queensland Investment Corporation. It acquired the Iona facility from EnergyAustralia in 2015.

Under the deal, the Commonwealth-owned energy generator and retailer – which also owns gas plants in Victoria and NSW – will take storage capacity at Iona from 2028.

Snowy Hydro’s gas power portfolio includes the Colongra plant in NSW.

Snowy Hydro chief executive Dennis Barnes said having a reliable supply of gas was “central” to the way the company operated and developed its assets.

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“Snowy Hydro’s generating portfolio of hydro, pumping and gas-fired power stations continues to support further deployment of renewables into the grid by ‘firming’ intermittent generation sources into reliable power,” he said. “The gas storage agreement with Lochard Energy will support the operation of our gas-fired power stations in Victoria.”

Saul Kavonic, an analyst at MST Marquee, said the timing of the deal, “only a few weeks after a near miss on a gas supply shortage, signals the government is supporting gas generation through to 2050 and beyond via Snowy with an investment of up to $1 billion”.

“This signals the government is now acutely aware of risks of gas shortages driven by power demand for decades to come notwithstanding their rhetoric that their gas code of conduct is working,” he said yesterday/

The rapid rundown of Iona’s storage levels in early winter this year, amid low renewables generation and constrained gas output, contributed to last month’s warning from the energy market operator of potential shortages in the southern states before spring.

Tim Jessen, the chief executive of Lochard Energy, said the deal would “underpin Lochard’s Heytesbury underground gas storage project through which we will further expand Iona to continue to provide critical energy storage services”.

The government in May released its Future Gas Strategy, which locks in the fuel’s use beyond mid-century to underpin renewables, supply manufacturers, and help trade partners manage their energy transitions.

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Snowy Hydro uses gas to complement its hydropower generation and to “firm” wind and solar generation bought from third parties.

It is due to bring its Kurri Kurri gas plant near Newcastle online this year and has said it wants to expand its two plants in Victoria.

But it has been unable to pursue its gas power ambitions beyond Kurri Kurri given the financial burden that the troubled Snowy 2.0 pumped hydro project, under construction in the Snowy Mountains, has placed on its balance sheet.

Snowy 2.0’s budget has more than doubled to $12 billion and the project is running several years late.

It remains unclear where Snowy Hydro will source the gas to be stored at Iona, given new field development has almost dried up and the south-east market is likely to face ongoing threats of shortages, according to the Australian Energy Market Operator and the Australian Competition and Consumer Commission.

Lochard Energy is already working to expand Iona, through its Heytesbury underground gas storage project, which the company says will help ensure there is adequate winter gas for electricity generation to support the transition away from coal.

The expansion is expected to add approximately 3 petajoules of gas storage – enough to supply 118,000 average households per year – and is due online this year.