rss
15

Power price impact of Hazelwood closure “negligible”, says analyst

Print Friendly

The March 2017 closure of the 1.5GW Hazelwood brown coal power plant in Victoria’s Latrobe Valley will have a “negligible impact” on retail electricity prices, independent analysis has found.

Modelling on the potential power price impacts of Hazelwood’s closure, prepared for the state government by Carbon + Energy Markets, indicates that retail bills would increase by less than 4 per cent (3.98%) in 2017 – compared to a no closure scenario.

According to the report’s author, Bruce Mountain, this meant bills would rise by about $44 in 2017 and about $35 in 2018, compared with the “no closure” scenario.

“By my own price projections, based on the wholesale market, retails prices would increase about 4 per cent, and then fall away again, by 2020, to 1.5 per cent higher with closure than no closure,” Mountain told RenewEconomy in a telephone interview.

Screen Shot 2016-11-03 at 2.24.52 PM

“When you compare this with what’s happening with retail offers at any given point in time,” he added. “there is not any major impact.”

This, explains, Mountain, is because, for households, the wholesale component of electricity bills is less than one third of each bill, while retailers charge a much bigger portion.

Screen Shot 2016-11-03 at 2.27.58 PM

So while on the wholesale level the cost for larger energy users could be significant, for households the impact will be “negligible”, he said.

“It’s important to remember that the range (of retail energy offers) from the most expensive to the cheapest… is more than a factor of two,” Mountain added. “So this change in the context of the retail market is simply not terribly significant at all.”

Of course, that has not been the message from some news outlets and commentators, some of which have claimed the cost of Hazelwood’s closure at around a 25 per cent jump in annual electricity costs.

But Mountain said claims of a 25 per cent retail impact, potentially based on old modelling by Frontier Economics, was “not at all credible” – “there is absolutely no credibility to that at all,” he said.

Victorian premier, Daniel Andrews, was equally scathing about the “pedalling” of redundant figures to breed fear over the impact of the coal plant’s closure – both in terms of electricity prices and supply.

“There is an oversupply of electricity across the national grid, and when you look at what Engie said in (its) statement about ‘market conditions,’ that is what it’s talking about,” Andrews told reporters.

“We’ve had discussions over the future of Hazelwood with Engie for some months now,” he said. “They were determined to make this decision because it is a decision consistent with their global outlook.”

On the impact to retail electricity prices, Andrews said it seemed some in the mainstream press based their numbers of “some pretty wild and inaccurate modelling” that was “old” and “redundant”.

“The numbers are more in the order of 4 per cent or 0.85c a week,” he said.  

  • David leitch

    I’d make three comments. (i) Bruce knows what he’s talking about. (ii) Pool prices are already up more that $20 MWh this calendar year and (iii) forecasting prices is very hard. Its not just cost and spare capacity but also transmission issues and market behaviour issues. History shows that forecasting prices in any market is difficult. My feeling is that if you are a business customer you have more reason to be nervous about electricity costs than optimistic at least over the next year or so. The March 2018 quarter and the Dec quarter of 2017 are ones to watch.

    • David leitch

      And of course it will almost certainly push Portland, the largest single site consumer of electricity in Victoria to also close. That probably would have happened anyway but this makes it virtually certain. Then the rise in NSW pool prices that has already happened and will probably keep happening will put a lot of extra pressure on the even larger Tomago smelter.

      Whether you think this is good or bad is not the point. The point is that the closure has a lot of flow on consequences that need thinking about, and the prices increases will matter a lot for some consumers and less for others.

      • Chris Drongers

        “The consequences” is an issue that is being ignored by the green side of politics. It suggests that transitioning to the low carbon economy won’t be painless. And to the “current coal system is the only system that will support a western lifestyle” conservatives for whom planning for the possibility of the end of coal would be an admission that the coal era coal will end.
        But what will replace smelting in the new economy? Renewable power will be too expensive to solidity into aluminium or copper or titanium for decades.

        • David leitch

          Renewable power is already lower cost, in terms of new build than fossil generation. As for new industries the two obvious ones are electric vehicles and data centres. Data centres is a huge business and a huge consumer of power. Unfortunately Australia’s draconian (Govt can see your data ) privacy laws means that no one wants to keep data in Australia even if the power was free. And we have zero EV policy.

        • ros

          Sorry Chris but you are factually incorrect about the cost of renewable power. Please remember to consider the levelised cost of fossil fuel after removal of the existing $billions of subsidies. And please rest assured that the Green side of politics takes flow on effects very seriously, unlike the Libs and Nats in relation to free trade agreements, and paying big dollars for tertiary education, and….

          • Chris Drongers

            Adam Smith – electrosmelt in regions with big hydro power.

          • RJ

            ridiculous,subsidized power from coal creates enormous wealth for the Nation…and keeps prices low for households,cheap energy..also provides 100% reliable back up power.Renewables produce nothing ,totally unreliable.Now..tell me..how much is each wind turbine given annually in subsidy.

        • Ken Dyer
        • wideEyedPupil

          the suggestion is that RE power eventually becomes much cheaper than fossils. and that’s before you even cost externalities like health, environment and, oh you know, civilisation.

          Even if all fossil and ag sector (read ruminant livestock) emissions ceased tonight at 6PM we’d cruise to at least +1.5º C average global warming due to lag and the removal of short lived cooling emissions that come from coal plant smoke stacks and planes. That’s not safe, even 1.0º isn’t safe for a our climate given that it translates into 10-20 m of sea level rise over time using all geological historical data we can analyse.

          And it points to the myths around the Paris agreement which Australia resisted and hasn’t even ratified. Paris commitments are equivalent to 3º C of warming even if you ignore all the ignored emissions that aren;t accounted for using UNFCCC methodologies (read ruminant livestock, fugitive emissions and all the other non-CO2 emissions which are only just starting to get mainstream press).

    • wideEyedPupil

      we know that VRET will be providing more merit order negative price bids from new wind and solar generators though.

  • As I noted yesterday, I’m sceptical that anyone can “know” what the price impacts will be:
    http://www.wattclarity.com.au/2016/11/what-would-price-impacts-be-if-hazelwood-were-to-close-in-march-2017-as-rumoured/

    Watch this space – seems another one emerging of “modelling consultants at 10 paces” , as noted here:
    http://www.wattclarity.com.au/2014/05/a-few-thoughts-on-the-ret-review-process/

    • ros

      Yes Paul, thanks for the article in Wattclarity. Required reading for anyone interested in the power sector.

    • RJ

      wonderful to watch idiots disappering up their own backsides.

  • wideEyedPupil

    Nobody mentioning the opportunity cost advantage in divesting from coal if a price on carbon remerges (as it must one day). Having more RE is the name of the game (well less than zero emissions actually) , getting it sooner means less emissions in the meantime on the way to 100% and if C price comes in we have already acted to position ourselves.

  • Barri Mundee

    The Melbourne Herald Sun was screeching about “soaring” power prices as a result of Hazelwood’s closure. But then it IS a News Corporation paper.