COUNTRY REPORT: AUSTRALIA
Australian coal plants are rapidly dying out Coal plants’ profitability is declining with the entry of low-cost renewable energy.
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ustralian consumers have been enjoying lower electricity prices and are even expecting to pay 6% or $77 less in 2024, the Australian Energy Market Commission said. Thanks largely to the entry of low-cost renewable energy sources, like solar and wind, that penetrate the market. But whilst ordinary households are rejoicing, coal plants are suffering—so much so that they are planning their closures earlier than planned. In Australia’s National Electricity Market (NEM), a grid that connects the whole east coast of the country, five of its 16 coal generators have brought forward their closure dates since the beginning of 2021, according to Johanna Bowyer, lead research analyst for Australian Electricity at the Institute for Energy Economics and Financial Analysis (IEEFA). “We’re seeing that coal is coming out of the market much more quickly than many expected. And this is happening because there’s a lot of low-cost renewable energy coming online,” Bowyer told Asian Power. Bowyer said the low-cost renewable energy is pushing down the wholesale prices in the spot market, particularly in the middle of the day, which would compel generators to ramp down their output in the same period. This is difficult for coal generators in particular as the nature of their operations does not have a lot of flexibility. “Coal… can’t easily be turned off or on, so generators will sometimes bid into the wholesale spot market at a loss, simply to stay online. This is rapidly eroding the profitability of coal-fired generators,” the IEEFA analyst said. “But we don’t have a clear long-term view of when exactly the coal exits are going to happen, as they keep being moved forward,” she added. The exit of coal plants is nominated by the generators themselves. They are required to notify the market operator three and a half years before their targeted closure. Retiring coal plants In February, Origin Energy proposed to the Australian Energy Market Operator (AEMO) that it will be retiring the 2,880-megawatt Eraring coal-fired plant in August 2025, much earlier than the originally targeted shutdown in 2032. Origin CEO Frank Calabria said in a statement that the proposed early exit reflects the “rapid transition of the NEM” to cleaner sources of energy. The company has “well-progressed” plans of putting up a 700 megawatts (MW) large-scale battery at the Eraring power station. 24 ASIAN POWER
In Australia, generators bid for the price they can generate electricity in the wholesale electricity spot market, and coal and gas generators are expensive to run (Photo: Eraring Power Station)
Johanna Bowyer
Coal can’t easily be turned off or on, so generators bid into the wholesale spot market at a loss to stay online
AGL in February moved forward the closure dates of coal plants Bayswater Power Station from 2035 to between 2030 and 2033, and Loy Yang A Power Station from 2048 to between 2040 and 2045. At the end of February, Brookfield Asset Management and Mike Cannon-Brookes’ Grok Ventures proposed to acquire AGL, to close the company’s coal capacity by 2030 and ensure AGL reaches net zero by 2035. They proposed to close 7GW of AGL fossil fuel capacity and replace it with at least 8GW of clean energy and storage, requiring $20bn capital. They initially bid for 100% of AGL’s share at A$7.50 per share. AGL rejected the proposal saying it “materially undervalues the company on a change of control basis and is not in the best interests of AGL Energy shareholders.” The bid was subsequently increased to $8.25 per share, which was also rejected by AGL. Brookfield and Grok Ventures have now put their “pens down,” CannonBrookes said in a social media post. Bowyer said if the bid was successful, the energy transition in the National Electricity Market is going to accelerate further. Electricity market In Australia, all generators bid for the price they can generate electricity in the wholesale electricity spot market, and the lowest bidding generators are usually allowed to generate electricity. Solar and wind have the lowest operational cost form of generation
and bid into the market at low prices, so are usually called on to generate electricity, Bowyer said in a commentary. Meanwhile, coal and gas generators, which depend on purchasing fuel, are more expensive to run, thus, they bid at higher prices to generate electricity. Batteries, on the other hand, absorb excess electricity when spot prices are low and deliver them when the prices are high. They also free up surplus energy which reduces system costs. “In theory, higher prices for sustained periods incentivise [the] building of new energy resources. If lower-cost energy resources are built to replace a retiring generator, and all else remains constant, prices will drop below the level before the generator’s retirement,” she stated, adding that more low-cost renewable energy into the NEM has historically pushed wholesale electricity prices down, especially in the middle of the day in the solar period. Bowyer added that the total cost of supplying electricity to households in December 2021 was at the lowest point in the past 8 years, according to the Australian Competition and Consumer Commission. Australia currently has a 25-gigawatt (GW) coal capacity, 23GW of which is in the NEM, the IEEFA said. Out of the 23GW NEM coal capacity, 14GW could be withdrawn by 2030, according to the AEMO’s Draft 2022 Integrated System Plan (ISP) Step Change Scenario for the NEM released in December 2021.
