Shelving of gas power plant puts more projects in doubt

The proposed plant, which would have existed on the Yallourn power station in the Latrobe Valley, was one of a number of gas-fired projects put on the drawing board several years ago as a way of power companies reducing emissions, and therefore costs, under the carbon price.

But the downturn in electricity demand following retail price rises - along with manufacturing sector demand down due to the strong dollar - has put pressure on power generators to abandon projects.

Bruce Mountain, the director of Carbon Market Economics, said more energy companies would be forced to consider moving away from low-emissions investments because of these changes. "Many market pundits had three years ago indicated there would be more rapid transfer to low emission technologies like gas-fired power generation," he said.

"But with lower demand and higher gas prices, that shift is being pushed back in time."

Mr Mountain said instead of investing in new gas projects, power companies were more likely to close parts of their coal capacity to save costs.

"Existing generators are having to fight very hard to compete in the market," he said. "The partial closures of brown coal plants makes more sense, because although they lose contribution to their profits, they are able to drive prices higher."

The decision by EnergyAustralia to abandon the project comes after AGL halted all work on its proposed power station south of Sydney in October, with the company also blaming weak electricity demand.

EnergyAustralia's group executive manager, energy markets, Mark Collette, said continuing with the project was no longer viable. "When we started the project we had the view that demand was continuing to rise and gas prices were going to stay at historic levels," he said.

"But over time that has changed, particularly this year where we have seen a significant drop in electricity demand."

Mr Mountain said GDF SUEZ Australian Energy's brown coal-fired Hazelwood power plant, also in the Latrobe Valley, could be next to consider its options. "One wonders how much longer the owners would like to produce at full capacity," he said.