South Australia to build battery storage and gas-fired power plant in $550m energy plan

The South Australian government has announced it will intervene in the national energy market in a $550m plan that seeks to tame the state’s turbulent power supply and prices.

Launching the plan, the premier, Jay Weatherill, said it was “clear the national energy market is failing the nation, as well as South Australia. And this is pretty extraordinary given we are a country that has an abundance of solar, wind and gas resources. For a country of that sort to be facing an energy crisis is a disgrace.”

The six-point plan, entitled South Australian Power for South Australians, will be paid for out of state government surpluses. It encompasses:

• Building of the largest grid-connected battery in Australia to store energy, funded by a new renewable technology fund

• Construction of a government-owned 250MW gas-fired power plant to provide emergency back-up power and system stability services for South Australia

• Introduction of new ministerial powers to direct the market to operate in the interests of South Australians

• Incentivisation of increased gas production to ensure more of the state’s gas is sourced and used in South Australia

• Creation of an energy security target to require a proportion of power used within South Australia to be generated within the state.

The new gas-fired power plant is budgeted to cost $360m, while $150m will be committed to the SA renewable technology fund – broken up into $75m in grants and $75m in loans – and new grants to incentivise new gas production are worth $24m.

A new royalties return scheme promises to provide 10% of royalties to owners of land above any petroleum field targeted for production.

Weatherill confirmed that the state government was seeking to incentivise fracking on agricultural land in the south-east, which has been a contentious issue among farmers in the region.

“It is not just about fracking, but unlocking reserves – there are conventional players in the south-east locked up.”

As previously announced, the government is tendering 75% of its electricity needs over the next 10 years in an attempt to encourage the construction of a new privately owned generator.

The plan was unveiled on Tuesday at the Science Exchange in Adelaide.

The South Australian treasurer and minister for energy, Tom Koutsantonis, said of the overall plan: “We estimate as a minimum this will create 630 new jobs. Ultimately what we’re not detailing here is the jobs we save, the jobs we incentivise with cheaper, more competitive prices in the market, which will allow our industry to compete on a better footing with our interstate competitors and international competitors.”

The state has endured a torrid time with energy price rises and blackouts, which the Turnbull government has blamed on the high penetration of intermittent renewable energy in South Australia, even when a storm last year knocked out power infrastructure.

The South Australian government is under severe political pressure over power prices before a state election in a year’s time.

The Liberal party, Nick Xenophon’s SA Best party and One Nation have all made reducing energy costs and improving security of supply central to their political messaging within the state.

The state opposition leader, Steven Marshall, said in a statement he was “disappointed that Jay Weatherill didn’t apologise to every South Australian today”, arguing the government should have done more to prevent the closure of the coal-fired Northern power station in Port Augusta in 2016.

“This $550m electricity tax is the latest cost of Jay Weatherill’s decision to drive the Northern power station out of business,” he said. “Since Jay Weatherill forced the Northern power station to close down, South Australians have suffered blackouts, price hikes and now tax rises to pay for that foolish decision.”

The aging Northern power station closed after the nearby Leigh Creek mine, which supplied the coal that fuelled the plant, shut down.

Nick Xenophon praised the government’s energy plan, but told Guardian Australia a backup for intermittent renewables should have been introduced much earlier.

He said: “I obviously welcome the plan, it is smart and pragmatic, but it should never have come to this. It is a bit like a car owner who ignores the need to service car, there’s oil running out, they let the engine seize up and now it needs repairs. The system did not have enough stability built into it.”

On Friday Elon Musk, the billionaire co-founder of the electric car company Tesla, promised on Twitter that his company could deliver 100-300MWh of battery storage to meet South Australia’s energy needs within 100 days of a contract being signed.

Musk has since spoken to both Weatherill and Malcolm Turnbull about the role battery storage can play in the Australian network.

Koutsantonis denied the plan to install a battery storage system was prompted by Musk’s tweet, describing it as “a happy coincidence”.

Weatherill said a site had not been chosen for the government-owned gas plant.He hoped it could be ready by summer, but “that is a stretch”. Any temporary measures to meet shortfalls before the new plant was in place would be a matter for SA Power Networks, Weatherill said.

The Greens senator for South Australia, Sarah Hanson-Young, said the plan should have focused more on solar thermal, and that the emphasis on gas represented a “huge payday” for the industry.

“The Greens will fight any attempt to open up new areas to gas exploration. More gas will not lower prices because the international market is setting Australia’s gas price and driving up electricity prices,” she said.

The Conservation Council of SA’s chief executive, Craig Wilkins, said a strong intervention made sense but a new gas station risked becoming a white elephant.

“While we strongly welcome the $150m renewable technology fund, the new powers to maintain reliability and a commitment to build Australia’s largest grid-connected battery, a new gas-fired power station costing $360m is a hyper-expensive lock-in of a fossil fuel that is supposed to be a ‘transition’ fuel only.

“Elon Musk’s tweet storm over the last few days shows how much excitement and interest there is in batteries and other clean and reliable energy options – including solar thermal with storage and pumped hydro – and how quickly the technology is coming on.”

Energy provider AGL praised the “comprehensive” plan in a statement: “Increased gas supply is a key way of improving energy competitiveness for South Australian business and households.”

The state routinely needs to import power from neighbouring Victoria, where the coal-powered Hazelwood plant is scheduled to close at the end of the month.

Further complicating South Australia’s energy security is last week’s warning from the Australian Energy Market Operator that the state, among others, will face gas shortages during the summer of 2018-19.

On Wednesday Turnbull will meet senior executives from the gas industry to discuss how to deal with the projected shortages.