By Alison Bevege
SYDNEY, Dec 9 (Reuters) - AGL Energy AGL.AX , Australia's biggest power producer, has rejected a government plea to keep one of its largest coal-fired power stations open and will instead replace it with a mixture of gas and renewable power.
Electricity has become a hot political issue over the past year, after a string of blackouts and price spikes hit households as well as major industrial users, including global miners BHP BLT.L BHP.AX and Rio Tinto RIO.L RIO.AX , in eastern Australia.
AGL rejected extending the life of the coal-fired Liddell plant past 2022 on Saturday saying that electricity generated from gas, wind and solar would be cheaper to produce.
The company said on its website that the cost of energy production from the proposed Liddell replacement strategy was A$83 per megawatt hour compared with A$106 per megawatt hour if it extended the life of the coal-fired plant.
According to AGL's figures, extending the life of the existing coal plant would cost A$920 million while replacing it cost A$1.36 billion.
Despite this, the replacement option was cheaper because of a longer asset life: 15 to 30 years compared with only five years for the extended coal plant.
AGL said two years ago it planned to close the ageing 2,000-megawatt Liddell power station in 2022 as part of a phased exit from coal by 2050. power company rejected the idea of selling the plant because it needs Liddell to supply existing energy to its customers and the plant will be repurposed to form part of its alternative generation after 2022.
Liddell also shares coal unloading facilities and water systems with Bayswater Power Station and separating it would require duplication of this infrastructure.
The government had asked the company to consider extending the life of the coal-fired power station or selling it to another operator, fearing a forecast 1,000MW shortfall in power after 2022 if the plant is shut. Minister Malcolm Turnbull told a press conference in Sydney on Saturday that the government would not allow a power shortfall.
"The gap in baseload power is not acceptable," he said.
Turnbull said that AGL now had a plan to meet that gap, which was being examined by the Australian Energy Market Operator.
"We look forward to discussions with AEMO," he said.
"I want to be very clear about this, I am tech-agnostic about energy. My object is to ensure that Australians have affordable and reliable power."