Technical work undertaken for the Turnbull government’s national energy guarantee assumes the ageing Liddell power plant will be out of the system by 2023 – a development that will help drive the emissions reduction requirements of the Coalition’s new energy policy.



While the Turnbull government has applied extraordinary public pressure to AGL Energy to extend the operating life of Liddell, including encouraging the Hong Kong-owned Alinta Energy to make an offer for the asset, technical work done for the Neg suggests retirement is already factored into the new system.

The 58-page modelling work conducted for the Energy Security Board on the Neg, obtained by Guardian Australia, says Liddell’s retirement is one of three factors material to whether the proposed emissions reduction target for the electricity sector of 26% below 2005 levels by 2030 can be met.

The other two factors are falling demand forecasts and the entry of a large proportion of renewable energy capacity already contracted into the system. The modelling did not examine the impact of plant upgrades as a mechanism to meet the emissions reduction target because of time constraints.

The modelling, done by Frontier Economics, indicates that no new coal enters the system either under the Neg, or on a business-as-usual scenario, and the Neg will drive a rising share of renewables at the expense of coal, which is forecast to fall from 73% of output in 2020 to 60% in 2030.

While the government has been keen to highlight the risks of rising power prices for consumers in the event Liddell exits the system, the modelling, which assumes the power plant retires, says wholesale energy prices under the Neg will be 30% lower than under business as usual by 2030.

It says the lower prices forecast as a consequence of the Neg “reflect the combination of policy certainty and a more competitive bidding process in the spot market from a higher level of contracting under the guarantee”.

It suggests Liddell’s retirement after 2022 will reduce supply, which will increase prices, but the government’s policy mechanism will ameliorate at least some of the negative consequences.

The modelling suggests the Neg will ensure a smoother transition than in a business as usual scenario “as bidding from existing dispatchable plant is more competitive under the guarantee” – with the policy leading to price reductions when the impact is measured over the decade.

The modelling emerged after AGL Energy confirmed on Monday it had received a non-binding and “highly conditional” $250m cash offer from Alinta and its Hong Kong-based owner, Chow Tai Fook Enterprises, for the Liddell power station and site.

Despite months of public pressure from the government, AGL has made it clear it does not want to sell the ageing plant. The company wants to close the facility and replace it with a mix of renewables, batteries, gas power, upgraded coal power and demand response.

After it received the bid from Alinta on Monday, AGL told the ASX that “no assurance can be given that any transaction will result from the offer”.

“AGL has not sought to sell the Liddell power station as it requires Liddell to provide energy to its customers until 2022 and for repurposing as part of its NSW generation plan post 2022,” the company said in a statement.

Alinta has signalled it is interested in a quick acquisition, and has tried to sweeten its offer by signalling it would be happy to sell power back to AGL to allow it to proceed with its own transition plans. The company is interested in expanding its market share in New South Wales.

While both the competition watchdog and the Australian Energy Market Operator have argued that more competition in the NSW energy market would be beneficial to consumers, the federal government has no power to force AGL to do anything with the asset it acquired from the state government in 2014.