CANBERRA: Origin Energy has struck two agreements with French energy major Engie that could help stabilise South Australia’s volatile energy market. Origin will supply gas to Engie’s Pelican Point power station in Adelaide for three years to June 2020, allowing the plant to return to full capacity. Origin will then source up to 240 mega watts of electricity from the power plant to supply its South Australian customers. Engie removed one of Pelican Point’s two generation units from the national market in 2015 because of a lack of long-term gas supplies. The second unit has since been used on a limited basis for peak demand locally, but the removal of the capacity has contributed to recent outages and soaring electricity prices in South Australia, which relies on renewable energy for more than a third of its total power needs.
Engie said work will begin immediately on a $40 million upgrade to the Pelican Point plant’s second gas turbine to improve its reliability and efficiency, with the increased volumes to be supplied from July 1. “I’m delighted Origin has been able to work with Engie to help address South Australia’s energy security challenges,” Origin (ORG) chief executive Frank Calabria said. “The power outages in South Australia reinforce the need for sufficient gas- fired power generation to be readily available, especially when wind and solar energy is not available.” Origin’s second agreement with Engie is for the supply of eight petajoules of natural gas to the French company in 2018 and 2019 that will help it meet the needs of local customers.
The two deals follow a meeting between Prime Minister Malcolm Turnbull and major gas suppliers earlier this month where he warned them of government powers to control exports if more gas supplies were not added to the domestic market. Energy companies including Origin have been asking the federal government to ensure energy security and affordability by supporting an emissions trading scheme and to remove barriers to energy exploration. RBC Capital Markets’ analyst Ben Wilson said it was difficult to assess any earnings impact on Origin from the agreements. “We do see this as a positive development for Origin however, as it provides peaking cover in what is a highly volatile market in South Australia and speaks directly to the question of private market participants finding a solution for grid stability and reliability issues,” he said.
