While falling wholesale electricity prices are a win for consumers, they may signal the early end of Australia’s fleet of coal fired generators. And according to leading experts in Australia’s energy market, this may not be but such a big deal.
The suggestions were raised during a panel organised by the Clean Energy Council for the Clean Energy Summit Webinar Series, with the Australian energy market set to see the exit of all fossil fuel generators over the next couple of decades as the rising costs of fuels, and the emergence of lower cost renewable energy technologies, push coal and gas out of the market.
Chair of the Energy Security Board, Kerry Schott, said that the problem faced by coal fired generators is fundamentally one of economics.
As was recently reported by the Australian Energy Market Operator, prices in the wholesale electricity market have fallen quite significantly over the last nine months as more renewables come online. Prices have fallen at the same time as emissions in the electricity sector continue to fall.
Schott suggested that this could become a driver of the accelerated closure of coal fired power stations as the fall in price is squeezing coal fired generators which are now working with very tight margins
“We’ve got plants that are becoming uneconomic, and some have got very tight margins at the moment,” Schott told the panel. “Wholesale prices are being driven down because of all the renewables coming in. That’s a good thing, but what then happens is that the coal plants are really struggling to make any money because they’re only being dispatched for a smaller number of hours a day.”
This was a view echoed by the recently appointed CEO of the Australian Energy Market Commission, Benn Barr, who said that the combined impacts of the exit of coal and the emergence of renewables were transforming the market.
“Two things are happening at the same time, two fundamental changes to the market,” Barr said. “By 2040, all of the fossil fuel generators will probably be gone.”
“That’s an unheard of moving out of generation in the sector in Australia, so you’ve got that at the large scale level. At the distributed level, you’ve got this transformational change as well, where solar PV, batteries, EVs and how customers engage is happening.”
Barr added that an important ongoing challenge will be the management of the grid integration of renewables.
“I think we’ve done pretty badly to date with how we’ve integrated distributed energy. By that I mean we haven’t done it in a very efficient way. Either for customers or the system and so getting that right and getting customers to benefit from the integration of distributed energy will be a really, really important reform,” Barr added.
Director of the Grattan Institute’s energy program Tony Wood told the panel that he did not see any real issues with the looming closure of coal fired generators, as most operators have been flagging the decommissioning of power stations years ahead of time, and the sector now had the capacity to build sufficient replacement low-emissions generation capacity.
“[Coal closures are] pretty well and truly flagged in advance. The people who would replace that capacity know what’s going on. They either own the capacity themselves, or are competing with the companies who do.”
“I still fail to see, that beyond a couple of things, we have a problem with coal closure,” Wood added.
The panel was the first opportunity to hear from the leaders of two key energy market bodies, the AEMC and the Energy Security Board, following last week’s meeting of energy ministers, that was held behind closed doors and under strict ‘cabinet confidentiality’ rules, following the abolition of the COAG Energy Council.
The AEMC’s Barr told the panel that the move to hold meetings of energy ministers, now being held under the guise of the National Cabinet Reform Committee for energy, behind closed doors may help focus ministers on the issues facing the energy market.
Meetings of the COAG Energy Council had developed into a forum for federal, state and territory ministers to air their grievances about the lack of direction and leadership in federal energy policy, and meetings attracted a degree of theatrics. However, Barr stressed that transparency around the decisions and process remained important.
“If it’s going to mean more strategic discussion from those ministers at the level that they should be engaging in the energy market, in the direction that needs to go, into the vision of where it needs to go, that’s great,” Barr said.
“I think, though, in the long run, the transparency of those things that impact on the markets really important. So you need that to come at some stage, for sure.”
The ESB’s Schott suggested that the body would need to continue operating indefinitely and that it should be wound up after it has dealt with its current
“I’m not a fan of the ESB continuing past its current job and the reason for that is I think the governance in this industry is already difficult and complicated,” Schott said. “Having another body doesn’t really help solve the issues that are there, I think.”
Uncertainty over the long term future of the Energy Security Board remains, with energy ministers yet to reach a decision about whether the body will be tasked with continuing its energy reform agenda under the new ministers forum.