Just over $25 million was paid to Australian Industrial Energy - now Squadron Energy - for a power plant project that had industry insiders scratching their heads at the time it was proposed.
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The Mercury revealed yesterday that Squadron Energy, owned by maverick mining billionaire Andrew 'Twiggy' Forest withdrew plans for a natural gas and hydrogen powered power plant in Port Kembla earlier this year.
The project was lavished with support from the state and federal governments, including a $30 million grant announced in the 2021-22 budget, as well as an expedited approvals pathway with the NSW state government.
The money was to go towards "early works" on the project, which when proposed cost $1.3 billion and would produce 660 megawatts once up and running.
According to a spokesperson for the Department of Climate Change, Energy, the Environment and Water, a significant amount of money began to flow to the project soon after the grant announcement.
"A total of $25,092,925 was paid and acquitted to the recipient of the Port Kembla Gas Generator Investment Development Grant to support preliminary stages of its development," the spokesperson said.
"The grant project could not be completed as originally intended under the grant agreement owing to commercial developments, and the remaining funds were decommitted."
The power station was intended to be built at Berth 101, adjacent to the gas import terminal, also being built by Squadron Energy and still under construction.
A 330 kilovolt transmission line would then connect the power plant to the electricity network at Dapto.
UOW energy expert Ty Christopher said it was the costs of the extended connection that had industry insiders scratching their heads during the project's early development.
"It was always at longer odds," Mr Christopher said.
"Over the whole project, connection costs were always going to be very, very high."
At the same time as Mr Forrest was touting his plans for Port Kembla, EnergyAustralia was also constructing a similar project on the other side of Lake Illawarra, Tallawarra B.
The gas-fired power station would also have the ability to convert to green hydrogen, once the fuel became commercially available, however there was a significant difference between the two projects.
Tallawarra was already connected to the electricity grid.
"There was always a better project that was already underway that this [Squadron's plant] was going to be competing against," Mr Christopher said.
The Port Kembla project also ran up against the shifting sands of federal energy policy.
The project was announced in March 2021, months after the former Morrison government announced a "gas fired recovery" out of COVID.
A spokesperson for then energy minister Angus Taylor said the project stacked up at the time.
"The project was expected to play a crucial role in reducing market volatility risks in NSW by supporting reliable electricity supply and keeping prices low."
At this time, the government was throwing money at natural gas-fuelled power projects, including a gas-fired power plant in the Hunter Valley which quickly blew out in cost, suffered delays and was criticised as unnecessary by the Climate Council.
After extreme gas market volatility in 2022, the new Albanese Labor government introduced a price cap in late 2022, to drive down gas prices.
Mr Christopher said there had been a significant shift in the funding priorities before and after the 2022 federal election.
"The Morrison government, and particularly Angus Taylor, were far more willing to throw money at the more speculative end of traditional gas-fired generation and were completely unwilling to throw any money at solid business cases in renewables," he said.
"They would take a 100-to-1 shot on a gas project, and put money behind that, before they would back an even money favourite in renewables."
While Squadron Energy said in a statement it still has plans for a "firming project" in the Illawarra, two similar gas-hydrogen power plants within 10 kilometres of each other may be unlikely to come to pass.
"I don't think that the idea of further gas-fired generation in the region is gone or dead," Mr Christopher said. "What I think they [Squadron] are doing is having a fundamental rethink about what that looks like, and position projects to be probably smaller scale and growth orientated, rather than a big bang up front."
