Electricity prices likely to rise after power plant shutdown
Just three years after the NSW Government sold the ageing, coal-fired Liddell power plant to AGL, the Federal Government is now begging the energy giant not to close it down.
The request follows the Australian Energy Market Operator (AEMO) informing the Government of the urgency of avoiding an overburdened electricity sector from failing to supply enough power.
"The Energy Minister and I are already in discussions with the owner of Liddell, AGL, about how we can ensure that that power station stays in operation for at least another 5 years after 2022," said Prime Minister Malcolm Turnbull.
Whether or not AGL is convinced to keep the power station operating after its 2022 use-by date, one thing is certain – electricity prices will continue rising.
In a market where supply cannot keep up with demand, the delivered product or service can command a premium price.
And while it will be NSW electricity users who will be mostly affected by the final decision on Liddell, Victorians and South Australians have also been warned to brace for unreliable supply.
The AEMO this week declared that the likelihood of summer blackouts in the two southern states was real, given the expected surge in demand from air-conditioners.
Without some form of intervention to prop up electricity supply, the operator estimated that the risk of blackouts in Victoria was 43 per cent and 33 per cent in South Australia.
In order to protect the greater electricity network, the market would be asked to ‘shed load’ at peak demand times.
Measures suggested to avert load shedding include AEMO paying for demand to be reduced, buying extra energy to keep in reserve, and greater use of diesel and gas-fired electricity.
The latter is the most expensive fossil fuel used in Australia and burning more of it will cause prices to spike.
Since 2012, a dozen coal-fired power stations have been decommissioned. The two largest were Victoria’s Hazelwood, which closed in March, and NSW’s Wallerawang C, which has not operated since November 2014.
The potential shut down of Liddell will have a bigger impact on the national grid. Not only is its output greater than Hazelwood’s, with a capacity of 2000 megawatts it is also Australia’s fourth largest coal plant.
The second and third largest plants, NSW’s Bayswater and Victoria’s Loy Yang A, are due to close in 2035 and 2048 respectively.
The biggest, NSW’s 2880-megawatt Eraring will be retired in the early 2030s, according to operator Origin Energy.
Uncertainty about future energy policy has meant that no new coal plants have been built in Australia since 2010. The inertia exists because power companies have been unable to decipher how much market support they will receive for investing in fossil fuel versus renewables generation.
According to RenewEconomy, in about 13 years from now, the coal-fired sector will be supplying less than a third – some 10 gigawatts - of the electricity it was producing in 2012,.
In the meantime, according to the Australian Energy Market Operator’s projections, we’ll connect 22 gigawatts of new large-scale wind and solar over the next 20 years, and by then we’ll have more than 20 gigawatts of rooftop PV, the publication reported.
These projections were made before two massive renewable announcements this year: Mr Turnbull’s plans to double the capacity of the Snowy Hydro Scheme and South Australia doing a deal with US company Tesla to build a giant 100-megawatt battery to store solar energy.
It is difficult to fathom why Prime Minister Malcolm Turnbull would go cap in hand to energy companies with hypocritical pleas.
Hypocritical because as a successful businessman and climate-change believer, it is ironic that he is asking certain electricity producers to:
- keep their struggling businesses operating
- ask that these businesses stop making enormous profits from ripping off Aussies, and
- he used to regularly call for the phase out of dirty coal power generation.
Just months ago he was trumpeting one of his pet projects – a huge increase in the capacity of the Snowy Hydro Scheme. The $2 billion plan would boost the renewable energy generator’s 4100 megawatt output by 50 per cent to power 500,000 homes.
What are you waiting for, Mr Turnbull? Just build it, before the dirty coal businesses blackmail you into spending the $2 billion to bail out their failing plants.
If the Prime Minister is foolish enough to rescue the Liddell power plant it will fly in the face of one of his key advisers, the Australian Energy Market Commission (AEMC).
Not so long ago, the commission said: “The decision of a generator to retire should be a commercial decision. ?Investment and divestment decisions are based on a range of factors. A decision to retire a generator can take a number of years and requires intimate knowledge of the commercial and operating structures of that generator as well as clear expectations about future revenues and costs. Generators are best-placed to manage the risk of their own investment or divestment decisions. The added benefit of this approach is that the risks of poor investment decisions are borne by generators rather than taxpayers or electricity consumers (as would be the case if a government were to intervene).”
In June, when Chief Scientist Dr Alan Finkel unveiled a blueprint to optimise Australia’s electricity market, he received a half-hearted response from the Government. It’s time for Mr Turnbull and his cohort to fully embrace Dr Finkel’s recommendations. They will go much further to encourage investment in the market to ensure we have a stable power supply all around the country and well into the future.
“The National Electricity Market is 5000km long, spans five states and one territory and has more than 9 million metered customers. It’s essential that we get it right,” Dr Finkel said at the launch of his considered blueprint.
Attempting to talk AGL into not retiring Liddell will only add more uncertainty and volatility to a network that is failing many Australians, both on supply and pricing.
What is the point of stretching Liddell’s lifespan out to 2027, when less than a fortnight ago the Prime Minister essentially fast-tracked the hydro project with a $29 million injection? With construction expected to begin next year, the expansion of the Snowy scheme is expected to be complete in 2024 – just two years after Liddell’s closure. And it will deliver extra hydro generation equal to Liddell’s current output.
Begging for the coal plant to keep burning fossil fuel for five more years is nonsense. Two more years, until the extra hydro electricity could be delivered, would make more sense.
At least Mr Turnbull appears to have got one thing right – keeping the Snowy scheme in government hands – because we all know what happens when electricity infrastructure is privatised. Prices go up as companies do their shareholders’ bidding to post ever increasing profits while they continue gouge consumers.
How much more are you paying for electricity now compared to the past? Do you think selling public assets to the free market has encouraged competition and brought power prices down? Should governments stop selling generation plants? Should governments bail out failing privately owned infrastructure?
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