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‘Closures any day’: Coal-fired power plants in peril as prices plunge

While demand is recovering, the flood of cheap renewable energy continues. With four gigawatts of new wind and solar already committed to enter the grid between 2021-23 and state governments in Victoria and NSW mapping out ambitious pro-renewables policies, investment bank UBS is projecting a “huge uplift” in renewable penetration that could keep prices depressed.

Ultra-low wholesale prices, now sitting at levels not seen since 2015, have prompted AGL to slash $2.7 billion off the value of its assets and warn of the elevated risk of a “supply-side response”.

“The outlook remains challenging,” AGL chief Brett Redman said.

“This lower-price environment will put pressure on existing generation in the market, while new generation build will increasingly rely on government contracts.”

Mr Busuttil said an earlier-than-scheduled coal plant exit would curtail supply and help elevate prices for those that remain. But he said all plant owners were at risk of bringing forward closure dates.

“They are all jockeying for position, saying we are in a better position than the plant next door and we are going to wait for the worst plant to close first,” Mr Busuttil said. “It’s like a game of chicken at the moment.”

While large energy providers are obliged to provide three years’ notice before closing a power plant, Mr Busuttil said governments could not force asset owners to operate at a loss. “We are a little bit in uncharted waters,” he said.

Origin’s black coal-fired power station in Eraring, NSW, is considered one of the most flexible in the market and can operate at a minimum output of 30 per cent. Mr Calabria said Origin expected to reduce Eraring’s future output. “We have to do enough to keep capacity available when it’s needed and manage within the flexible window of that asset,” he said.

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AGL said the Loy Yang A coal power plant in Victoria and Bayswater plant in NSW were the lowest-cost generators in their asset classes and the company would continue to pursue efficiencies. “AGL will continue to operate these assets responsibly and support our people and communities during our transition,” a spokeswoman said.

Coal and gas-fired generation remain the dominant sources of Australia’s energy supply, together accounting for more than 75 per cent. But a surge in investments has driven projections that wind, solar and hydro power could soon increase to more than 30 per cent of the energy mix.

Origin and AGL, whose assets include coal, gas and renewable energy across Australia, are coming under rising pressure from activists and major institutional investors alike to improve their carbon credentials and, in particular, reduce reliance on coal, the heaviest-emitting energy source.

Last year BlackRock, the world’s largest asset manager, threw its support behind a shareholder push for AGL to bring forward the closures of its remaining coal-fired power stations in order to support the Paris agreement’s goal of limiting global warming to 1.5 degrees above pre-industrial levels.

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