In April 2025, the Liddell Power Station — Australia's largest coal-fired power plant — operated its final full month before scheduled closure. The Hunter Valley facility, which generated 2,000 megawatts of capacity and supplied approximately 20% of New South Wales electricity demand, has been a cornerstone of Australian energy infrastructure for over five decades.
For Australian manufacturers, the Liddell closure is not simply a historical event — it marks a structural shift in the energy supply landscape that affects operating costs, procurement strategies, and long-term supply chain planning. This is particularly relevant for businesses that import manufactured goods from China, where energy costs and reliability have long been competitive advantages that are now shifting.
The Liddell Closure: What It Means for Energy Supply
Immediate Market Effects
Liddell's closure coincided with a period of heightened electricity market volatility in the National Electricity Market (NEM). Several factors amplify the impact:
Reduced baseload capacity: The NEM lost 2,000 MW of proven, dispatchable baseload generation. While replacement capacity (primarily from solar and wind) has been added, the intermittency of renewable generation creates reliability challenges that coal did not pose.
Transmission constraints: The Hunter Valley region, where Liddell is located, faces transmission bottlenecks that limit the extent to which renewable generation from surrounding areas can fill the gap. This creates local price spikes during high-demand periods.
Price volatility: Spot electricity prices in NSW have shown increased volatility since Liddell's closure, with price spikes during evenings and periods of low renewable generation. Average prices have increased approximately 12-18% compared to the same period in 2024.
The Replacement Challenge
The NSW government committed to replacing Liddell's capacity through a combination of:
| Replacement Source | Capacity | Timeline | Status |
|---|---|---|---|
| Tumut 3 (Snowy 2.0) | 450 MW | 2025-2026 | Under construction |
| Wongstown Solar Farm | 200 MW | 2025 | Operational |
| Broken Hill Solar Farm | 150 MW | 2025 | Operational |
| Various wind projects | ~800 MW | 2025-2027 | Various stages |
| Demand response | 200 MW | Ongoing | Contracted |
However, the timing of replacement capacity has not perfectly aligned with Liddell's closure, creating a period of tighter supply than ideal.
Manufacturing Energy Cost Implications
Direct Cost Impacts
For energy-intensive manufacturers, the Liddell closure has direct cost implications:
Higher wholesale electricity prices: The 12-18% average price increase translates directly to higher operating costs for businesses on market-priced contracts. For a manufacturer consuming 10 GWh annually, this represents an additional cost of approximately $180,000-$300,000 per year at typical industrial price levels.
Spot price exposure: Businesses with spot price exposure face increased volatility. While hedged contracts provide protection, the cost of hedging has increased as retailers price the increased volatility into contract offers.
Network charge increases: AEMO has approved network tariff increases to fund transmission upgrades necessary for the energy transition. These increases, which range from 8-15% depending on region and load profile, add to the cost pressure from wholesale price increases.
Energy-Intensive Sectors Most Affected
The sectors most directly affected by the Liddell closure include:
- Aluminium and steel processing: Extremely energy-intensive, with electricity representing 30-40% of production costs
- Chemical manufacturing: Significant energy consumption for process heat and electrolysis
- Paper and packaging: Combined heat and power requirements
- Plastics and polymer processing: Energy-intensive extrusion and processing
- Food processing: Climate-controlled operations, cold storage, and thermal processing
For Australian businesses in these sectors that compete internationally, energy cost increases directly affect competitiveness — particularly against imports from regions with lower energy costs.
The China Connection: Energy Costs and Supply Chains
Chinese Manufacturing Energy Advantages
Chinese manufacturers have historically benefited from lower energy costs, driven by:
- Coal-dominant generation mix: China derives approximately 60% of electricity from coal, providing low-cost baseload power
- Government-subsidized energy prices: Industrial energy prices in China have been kept artificially low in some regions to support manufacturing competitiveness
- Scale advantages: Large industrial zones benefit from pooled procurement and direct grid connections
For Australian importers, these energy cost differentials have long been a factor in the economics of China sourcing. The Liddell closure and subsequent Australian energy cost increases marginally narrow this gap — though the fundamental cost advantage remains significant.
Energy Intensity of Australian Imports from China
The energy intensity of imported goods varies significantly by category:
| Product Category | Energy Intensity | Australian Import Volume (2024) |
|---|---|---|
| Aluminium products | Very high | $3.2B |
| Steel and iron products | High | $4.8B |
| Chemical products | High | $5.1B |
| Electronics and components | Medium | $12.3B |
| Textiles and apparel | Medium-low | $8.7B |
| Furniture and manufactured goods | Low | $6.4B |
For energy-intensive product categories, the energy cost component of production represents a meaningful share of total cost — and this cost is embedded in the import price.
Strategic Responses for Manufacturers
Energy Procurement Optimization
The Liddell closure creates urgency to review and optimize energy procurement:
Review contract structures: Examine whether current contracts adequately reflect market conditions and future price expectations. Consider fixed-price contracts for a portion of load to provide certainty.
Explore renewable energy agreements: Corporate power purchase agreements (PPAs) for renewable energy have become increasingly competitive, with large-scale solar and wind offering prices below current grid averages in some regions.
Investigate demand management: Shifting load away from peak periods can significantly reduce exposure to spot price spikes. Many manufacturers can shift production scheduling with minimal operational impact.
Audit consumption patterns: Detailed load profiling enables targeted efficiency improvements and more precise procurement optimization.
Supply Chain Reconfiguration
Energy cost changes may warrant supply chain reconfiguration:
Review China sourcing decisions: For energy-intensive products, re-evaluate whether China remains the optimal sourcing region as Australian energy costs increase. Alternative sourcing regions (Vietnam, Indonesia, India) may offer different energy cost profiles.
Local inventory strategies: Higher energy costs for Australian manufacturing increase the value of maintaining local inventory — reducing the need for energy-intensive local production while ensuring supply security.
Supplier energy assessments: Include energy costs and reliability in supplier evaluation criteria. Chinese manufacturers in regions with more reliable, lower-cost energy may become relatively more attractive.
Long-Term Energy Transition Planning
The Liddell closure is part of a broader energy transition that will continue to affect manufacturing operations:
2030 targets: Australia's 2030 renewable energy target (50% by 2030) will continue reshaping the generation mix. Manufacturers should plan for continued evolution in price structures and reliability characteristics.
Electrification trajectory: The broader economy's shift to electrification (transport, heating) will increase overall electricity demand, potentially creating upward pressure on prices even as renewable capacity expands.
Carbon pricing trajectory: While Australia does not have a federal carbon price, international carbon border adjustments and ESG requirements may eventually create carbon costs for Australian manufacturers competing internationally.
Implications for Import Supply Chain Strategy
Competitive Position Shifts
The energy cost changes resulting from Liddell's closure create nuanced competitive position shifts for Australian businesses:
Importers vs. domestic manufacturers: Higher Australian energy costs strengthen the relative competitive position of imported goods, particularly from regions with lower energy costs. This may support increased import volumes for energy-intensive product categories.
Australian exporters: Australian manufacturers serving export markets face increased input costs, potentially affecting competitiveness in international markets. This creates pressure to improve efficiency or relocate production.
Value-adding in Australia: The economic case for value-adding in Australia (rather than importing finished goods) weakens as energy costs increase. Businesses that have historically manufactured in Australia for quality control or customization reasons may face increased cost pressure.
China Sourcing Strategy Adjustments
For businesses importing from China, the energy cost changes suggest:
Increased focus on energy-intensive categories: For products where energy represents a significant production cost component, maintaining or increasing China sourcing may be advantageous as Australian manufacturing becomes relatively more expensive.
Supplier energy evaluation: Include energy cost and reliability in supplier assessment criteria. Some Chinese regions have more competitive energy costs and more reliable supply than others.
Long-term contracts: Consider longer-term supply contracts that lock in pricing, protecting against further energy cost increases in either Australia or China.
FAQ
Will electricity prices continue to rise after Liddell? Wholesale electricity prices are expected to remain elevated through 2026-2027 as new renewable capacity continues to come online and the market adjusts to baseload coal exit. Long-term, the transition to renewable generation should moderate prices, but the transition period involves uncertainty and potential price volatility.
Are there government support programs for energy-intensive manufacturers? The Australian government has various programs for energy efficiency and emissions reduction, including the Emissions Reduction Fund, Manufacturing Modernisation Fund, and various state-level programs. Eligibility and available amounts change regularly — we recommend checking with the Department of Industry and Science for current information.
How do energy costs in China compare to Australia? Chinese industrial electricity prices average approximately AUD $0.06-0.08 per kWh (depending on region and contract type), compared to Australian average industrial prices of AUD $0.12-0.18 per kWh. This significant gap underlies much of the competitive advantage of Chinese manufacturing for energy-intensive products.
Should I move production back to Australia given energy cost increases? For most product categories, the energy cost differential between Australia and China (approximately $0.06-0.12 per kWh) is not sufficient to justify relocating production, particularly when accounting for labour costs, logistics, and other factors. However, for very energy-intensive products where energy represents 30%+ of production costs, the analysis may be different.
How does the energy transition affect supply chain reliability? The transition from coal to renewable generation introduces new reliability dynamics. While renewable generation costs are lower, the intermittency of wind and solar creates periods when supply is constrained. Businesses should plan for this variability in their energy supply arrangements.
Can I lock in renewable energy prices for my manufacturing operations? Yes, corporate power purchase agreements (PPAs) for renewable energy are available in most Australian states. Prices typically range from AUD $60-90 per MWh for large-scale solar or wind, which is competitive with current grid prices in many regions. PPA terms typically run 7-15 years.
The Liddell closure marks a structural shift in Australian energy supply. For manufacturers and importers, understanding how this shift affects operating costs and competitive positioning is essential for strategic planning.
Winning Adventure Global helps businesses navigate the energy transition and its supply chain implications. Our team advises on energy cost management, supply chain reconfiguration, and China sourcing strategy in the context of Australia's changing energy landscape.
To discuss how the Liddell closure affects your supply chain, book a free strategy call with our team.
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