Strike Energy has clinched a final investment decision for its $137 million South Erregulla peaking gas power plant, marking a transformative milestone for the Perth-based explorer. 

Once operational, the plant could play a critical role in Western Australia's energy transition, supplying much-needed peaking gas to the South West Interconnected System.

Unlike other major Australian grids, the South West Interconnected System (SWIS) is designed to use intermittent power sources.

The achievement represents an evolution for Strike, shifting from a pure-play gas explorer to a developer of integrated energy solutions. 

However, the road to FID had its challenges. 

Strike CEO Stuart Nicholls describes the plant as a cornerstone of the company's vision to align upstream gas production with the state's transition from coal. Yet, this vision has faced significant challenges, including underwhelming results from key appraisal wells and regulatory delays, forcing the company to recalibrate its plans and expectations.

"We had to respond quickly," Nicholls said. "We turned a difficult situation into an opportunity by pivoting to a gas-to-power strategy that fits with the changing energy market."

 

Shift to peaking power  

The 85-megawatt South Erregulla peaking gas power plant is intended to meet the increasing demand for peak electricity in Western Australia while generating consistent revenue. 

Strike is taking advantage of recent modifications in market rules by the Australian Energy Market Operator (AEMO) to prepare the plant for success in the state's capacity market by 2026-27.  

Nicholls attributed the company's capability to adapt swiftly to its "nimble" corporate culture. 

"Strike can find ways to create value even in challenging circumstances," he noted.  

Strike has secured $153 million in financing from Macquarie Bank, indicating confidence in the project's financial prospects. However, managing WA's evolving energy policies remains a significant challenge. Changes to domestic gas reservation rules and capacity credit payments could affect the plant's revenue potential.  

"Western Australia's energy policies must ensure reliable gas supplies during the transition to renewable energy. We are actively engaging with policymakers to promote stability for projects like South Erregulla," Nicholls stated firmly.

 

New hurdles emerge

As it readies to start construction, Strike may face challenges such as rising costs, supply chain issues, and fluctuating energy prices. The plant's success will depend on effectively managing these risks and achieving peak power demand targets.  

However, Nicholls remains positive.

"Strike is committed to enhancing shareholder value while supporting Western Australia's energy objectives," he said.

Nicholls emphasised Strike's disciplined execution approach was critical noting its status as one of the lowest-cost producers in the state.

Undoubtedly, South Erregulla illustrates Strike's capacity to adapt to changing market conditions. 

While some view peaking gas power as a temporary solution, Nicholls contends it is vital for maintaining grid stability during the transition to more sustainable energy sources.

"This plant serves as a bridge to a lower-carbon future, and we are committed to contributing to this evolution," he said.  

As Strike addresses the complexities of energy policy, market variations, and operational risks, its adaptability will be pivotal. 

The forthcoming years will likely be significant in determining the company's position within WA's energy landscape, with South Erregulla representing a crucial aspect of its strategic approach.