Labor to support $600m Kurri Kurri power plant but only if it runs on green hydrogen by 2030

Federal Labor says Snowy Hydro could proceed with building a new power plant in the Hunter Valley if it wins government at the upcoming election – but insists the plant should be powered entirely by green hydrogen, instead of gas, by 2030.

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Photograph: Mike Bowers/The Guardian

The opposition leader, Anthony Albanese, and the shadow climate change minister, Chris Bowen, are expected to make the announcement during a campaign visit to the electorate of Paterson on Tuesday.

Guardian Australia understands Labor wants the proposed gas “peaking” plant to be powered by 30% hydrogen at the time it becomes operational and 50% by 2025 and 100% by 2030.

The Morrison government’s decision to spend up to $600m on the Kurri Kurri gas-fired plant has been widely criticised since it was announced by the energy and emissions reduction minister, Angus Taylor, in May last year.

Related: NSW approves Morrison government’s $600m Kurri Kurri gas-fired power plant

Billed as part of the Morrison government’s promised “gas-fired recovery” from the pandemic, the plant was promised to be turned on only when needed to fill gaps in the market. Documents lodged with the NSW government show Snowy Hydro expects it will run at 2% of its full capacity annually.

While this is not uncommon for “peaking” gas plants, analysts have said the plant was not needed to maintain electricity supply and did not “stack up” commercially given the range of cheaper and cleaner alternatives in development.

Others have said the government interfering in the electricity market was likely to further discourage the huge private investment needed to deliver new power generation over the coming decades.

Gas is a fossil fuel that releases about half the emissions of coal when burned but contributes more to global heating once methane that leaks during extraction is factored in.

Taylor has suggested the plant could also use some hydrogen blended in with the gas to lower its greenhouse emissions. Snowy Hydro’s environment impact statement for the project said there was potential for this in the future, should hydrogen become economically viable, but it would require the plant to be modified at an increased cost.

The billionaire Andrew Forrest has been more bullish about the possibility of blending green hydrogen – made with renewable energy – with gas for use in power plants.

His company Squadron Energy is promising a 660 MW gas-hydrogen generator – roughly the same size as the Kurri Kurri station – at Port Kembla at an estimated cost of $1.3bn, including $30m in federal funding to help make it hydrogen compatible.

The company says the plant will be capable of running on 50% green hydrogen when first turned on, with a goal of increasing that to 100% by 2030.

Some international analysts have suggested electricity generation is likely to be among the least economically viable uses of hydrogen should an industry develop on the scale some have predicted.

The National party is targeting Labor-held seats in the Hunter Valley in NSW, hoping to recruit voters disaffected by Labor’s more ambitious climate change policy commitments.

Retiring Labor veteran Joel Fitzgibbon, who suffered a significant voter backlash in his Hunter electorate in the 2019 election, has spent much of this term warning Labor will lose another election if it pursues ambitious climate commitments at the expense of regional jobs in traditional industries.

With a decision to pursue the controversial Snowy plant, but require that the peaker run on hydrogen rather than gas, Labor is attempting to walk a line between supporting a new development in the Hunter region, but not supporting the lock-in of fossil fuel-fired electricity.

Taylor has argued the Kurri Kurri plant is needed to avoid a significant increase in wholesale electricity prices when the Liddell coal-fired plant shuts in 2023.