The closure of Hazelwood mine and power station has raised a lot of concerns about increasingly higher electricity costs in the future. But Hazelwood is not as relevant in the long term as other factors.
Coal-fired power stations provide the majority of the “baseload” energy for Australia’s eastern coast-based National Electricity Market. And since the Latrobe Valley power stations and coal mines fuel the far cheapest baseload power, simple logic says the price must rise.
However, the cost of the electricity that fills the post-Hazelwood gap is mainly what would force immediate price changes. It also depends on whether or not rising energy demands widen the gap and exacerbate the demand shortfall. If there is an increasing energy shortfall it will add to price pressures.
The retirement of coal-fired generators in South Australia, Victoria and New South Wales in recent years has been mitigated by the trend of falling electricity demand that’s been driven by energy efficient lights and appliances. Only in the last two or three years have we seen hints that demand is now turning and beginning to slowly rise. It also happens to be at a time when renewable wind power has been added to the system.
The current year-long capacity factor for coal-fired power stations is running at a comfortable 65% with some larger ones in NSW well below that (particularly Liddell, at 43% during 2016).
During hot and cold seasonal peaks the overall capacity factor is up past 80% with additional load being supplemented by gas and hydro.
With Hazelwood’s closure, the major generators in NSW are poised to fill the gap. Whilst Victoria has consistently exported power to NSW, the flow is likely to reverse and the reserve capacity within the National system will become much tighter.
There is also a possibility of a “South Australian scenario” where gas – with it’s significantly higher cost – will fill some gaps and cause significant spikes in wholesale energy prices. In that case there could be pressure for adjustments to consumer energy prices.
By 2020 the national Renewables Energy Target promises a large amount of new renewable electricity. Power from renewables has been coming in at far lower prices than for NSW black-coal power and there will be a countering downward push on prices.
The Victorian Government’s own Renewable Energy Target scheme, the VRET, will see a significant boost in capacity by 2025 with an annual output comfortably surpassing the Hazelwood gap. This will make Victoria more resilient in the face of further closures of Latrobe Valley power stations and coal mines.
In fact, every other State in the National Electricity Market (Queensland, New South Wales, South Australia and ACT) are also pushing their own RET programs, so by 2025 we are likely to see a surfeit of demand sufficient to force down electricity prices in all eastern states.
In turn this growth of renewables will hurt the coal-fired electricity suppliers as the delivered price of renewable power will greatly undercut them. With 75% of of the national coal-fired fleet already at retirement age, there could be any number of closures within the next 10 years.
Whilst there should be market stability by 2020, the 2025 scenario is rather less certain. We will require effective policies at the federal government level, a less failure-prone National Grid (South Australia and Tasmania both had major connectivity issues in 2016), and a good measure of electricity storage to supplement the capacity of the renewable energy providers.
If the will is there, sufficient time is available to resolve these issues and keep electricity prices down.