Australia doing crap job on emissions, but prices may fall | RenewEconomy

Australia doing crap job on emissions, but prices may fall

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Our analysis of the new renewable energy projects to come on line in next few years suggest a fall in electricity prices – at least until the closure of Liddell.

Figure 10 QLD average generation by fuel 2020. Source ITK
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Generation prices to fall in front of Liddell closure

The analysis below makes the following points.

  1. There is still room for some new supply under a 26% carbon reduction target. Not much but some. Maybe another 2000 MW
  2. We expect a sharp fall in gas fired generation in the 2020-2022 period when all the new renewables are on line but before Liddell closes. This should lead to wholesale price reductions. The modelling we have done is crude, makes no allowance for interstate transmission and just looks at daily half hourly averages.It says nothing about demand spikes, low wind, low hydro or rainy periods. For all that I think its highly illustrative of the changes between the year to March 31, 2018 and what we will see in say 2020.

    Essentially I expect a lot less gas in each State and in QLD and Victoria there is some prospect, depending on exports of a small reduction in coal fired generation or to put it another way an increased requirement for coal ramping.

    These outcomes are shown in figures 7-12 and are based on scaling up existing average half hourly output from wind & PV to allow for new generation. We assume demand is flat, or at least that behind the meter growth broadly offsets near term increases in demand, so that every MWh extra from wind or PV is a reduction first in gas and then hydro for a particular State. Comments on this simple approach are, as usual, welcome.

  3. The emissions intensity component of the NEG may, if implemented, take effect from 2020. Targets for the years between 2020 and 2030 have not yet been set. In any case the scheme proposes flexibility around meeting the target in any year, with over or underachievement able to be made up in subsequent years.The target means that at some point there will need to be some further reduction in coal fired generation, with Liddell the obvious impetus. In this note we don’t think muchabout the generation mix after Liddell. However …
  4. Some new renewables will be required post Liddell both for price and emission reasons. What’s not clear is how the policy will produce new supply in front of the Eraring and other power station closures that happen in the early 2030s. If electricity prices fall far enough, which we doubt, as a result of the reduction in gas generation the profitability of Vales Point B, sky high at the moment, could also come into play.

Australia is doing a  crap job of reducing emissions. Outside of electricity, policy is BS

Respected consultancy NDVER states in their latest Tracking 2 degrees report

“Australia’s national emissions for calendar year 2017, excluding land use change, were the highest on record since records began in calendar year 2002”

The reasons are clear. You fight like crazy to get any action in electricity and emissions everywhere else go up because Australia has no policy.

Emissions in electricity are down and will fall further

We estimate that 20 mt of further reduction are required to get to 28% below 2005 levels in the NEM.

The exact numbers are always a bit rubbery and depend on sources and methods

Figure 1Emissions target in the NEM Source: ITK

We used NEM Review to show electricity related emissions for the year to March 31 based on emissions factors contained in the NEM Review Catalogue and electricity production. Using the 12 Months to March 2018 means that the Hazelwood closure is in the numbers.

We can look at the emissions by fuel and state and see that coal fuelled generation in NSW is the largest contributor

Figure 2 NEM emissions by fuel and State source: ITK, NEM Review

And breaking NSW down further we can see that even when Liddell eventually closes it takes just 8 mt out.

Figure 3 NSW coal emissions by generator Source: ITK NEM review

What about new supply?

We have long maintained that lot’s of new renewable supply is just round the corner. Our numbers total 5.6 Gw excluding behind the meter or 5.3 GW also excluding gas and coal.

Figure 4 NEM wide new generation source: ITK

However as we increasingly notice some of these PV farms are running slowly.

In QLD, FRV has a PPA with EnergyQueensland (Ergon in this case) but we can’t find any info that the Lilyvale PV farm has started. A few other projects seem to be running a month or two behind schedule but not enough to materially change our estimates

We are removing the EcoEnergy/Investec Aramara PV farm from out list of projects as it does not appear to have started construction.

Of the wind farms, Crookwell 2 (91 MW) has experienced delays in sourcing turbine blades and is unlikely to be online prior to the December quarter this year.

Sapphire (260 MW) is energising with max output regularly hitting 50 MW in the last fortnight. Silverton (200 Mw) and Mt Emerald (175 Mw) still seem to be roughly on track for September quarter energization . Mt Gellibrand (132 MW) seems to be very much on track for commissioning start in April.

All up we see about 15 TWh of new low emission generation. This assumes all that generation is dispatched. However it may not be.

Figure 5 Energy from new generation. Source: ITK

We know that wind farms in South Australia already have output curtailed by up to 10%. The question is whether there will be any curtailment elsewhere from current production.

The most likely is from QLD PV farms where over 1 GW of utility PV will essentially equal PV output of the existing  1.8 GW behind the meter base. On balance we don’t see any additional curtailment outside South Australia

Electricity consumption  to be flat for a few years

Unless electric cars take off in Australia despite zero policy support from any level of Government (Local, State and Federal are all equally slothful), it’s hard to see much growth in electricity consumption.

Even if EVs do take off its very hard to see them adding even 1 TWh to demand prior to say 2024. Even if they are 100% of new car sales by 2030 it will still take time to run off the existing fleet of oil based cars.

There are still risks to large industrial loads. We’d specifically call out Portland aluminium smelter, and by extension other aluminium smelters as being at risk. And that’s despite a recent surge in aluminium price.

Household consumption from population growth can be broadly set to be notionally offset by behind the meter new build. On this basis we see NEM wide consumption growing about 0.5 TWh per year, maybe less, or less than 0.5% per year.

Average daily production by State and fuel post the current investment

As previously stated ITK can’t afford Plexos (as used by AEMO and some others) or the nearly as complex, black box models used by Jacobs and Frontier. Even if we could afford them it would be a bit like an amateur playing Jimi Hendrix’s red Stratocaster, it just wouldn’t sound like Jimi.

So we have adopted a much simpler approach and one that is no doubt open to many criticisms.

The model has three steps:

  1. Get the latest 12 month average daily generation curve by fuel for a particular State.
  2. Estimate the average half hourly output of new build wind and PV.
  3. Assuming demand is flat use the new output to reduce first gas, then hydro and then existing coal output.

Step 1 existing half hourly generation year to March 31 2018

What we did is for of NSW, Queensland and Victoria, the main electricity consuming areas was to look at average  half hourly generation .  For the three large regions this is shown in Figs 7,9,11 below.

Step 2: Scale up wind & PV in each State for new supply

We then scaled up wind & pv in each State by the increase from new supply. For instance wind in NSW is going from 668 MW to 1557 MW.

We used NSW utility PV as the half hourly supply shape for the new utility PV in all States. This will probably be a bit inaccurate in Vic and South Australia but will be close enough in QLD.

Its well worth noting that for both wind and PV these are over the year half hourly averages when a better model would at minimum have Summer and Winter profiles. Another very obvious limitation is that export and imports are ignored.

For QLD wind we used NSW wind as the half hourly pattern.

The results are mainly for the Author’s own benefit. A summary of the new supply is :

Figure 6 New generation relative to current level in wind & pv. Source: ITK

Step 3: Reduce output of wind and or gas to get back to no change in average output

New wind and PV can be expected to displace the highest marginal cost fuels first. Gas is obviously the highest marginal cost, hydro is zero.

However hydro output is constrained in Australia by water catchment and is often only dispatched as a last resort. Its also constrained by irrigation requirements.

Irrigation laws often mean that hydro power is produced at times that have nothing to do with electricity prices or demand. Its hard to know how to deal with this exactly in a model of this kind.

For this exercise we made a decision that the new PV and wind would displace gas first and hydro second. In case there was still higher supply we then reduced coal. The changed supply patterns are in Figs 8,10,12.


NSW is the largest State by demand and  a net importer of electricity but the imports from Victoria have virtually ceased in the past 12 months. The results of this desktop exercise show that on average, and it is an average, the need for gas generation in NSW is much reduced, from 284 MW down to 16 MW and average hydro output is halved.

Figure 7 NSW average generation by fuel year to March 2018. Source NEM Review
Figure 8 NSW average generation by fuel 2020. Source ITK








We would expect this to be beneficial for prices, to the extent that prices are based on marginal cost.


Results in QLD are interesting. On this very simple view gas use in the middle of the day is on average eliminated and there is even some coal reduction. Its an obvious point that when you model on the basis of variable cost you penalise gas before coal, but this is the exact opposite of what you want to achieve for carbon emissions. Coal ramping will increase but should be quite manageable.

The result on average prices is harder to model.

To an extent QLD coal generators will probably try to export more to NSW in the middle of the day but will face resistance as prices in NSW will be under pressure at that point anyway

Figure 9 QLD average generation by fuel year to March 2018. Source NEM Review
Figure 10 QLD average generation by fuel 2020. Source ITK


Figure 11 VIC average generation by fuel year to March 2018. Source NEM Review
Figure 12 10 VIC average generation by fuel 2020. Source ITK








Similar results in Victoria to Queensland except driven more by wind than PV. For the Vic PV we applied a 10% handicap on the PV ouput to allow for the Southern Lattitude. T

here is still enough to see some reduction in coal fired generation at lunchtime and, due to the wind, some reduction in coal in the minimum demand window.

Conclusions good for price but not initially for carbon in 2020-2022 period

Although these results are at best illustrative there is enough to suggest that AVERAGE  gas output and AVERAGE  hydro output will be significantly reduced over the NEM once the new renewables are in place.

Depending on who you believe its either gas or coal in NSW that sets the electricity price much of the time. If we assume it is gas because of its higher prices then these results suggest a fall in spot prices. But carbon output will be very little impacted.

The impact on price depends on the bidding behaviour of the remaining thermal generation and their own costs. We have already pointed out that the costs of coal fired generation are increasing in both NSW and Victoria.

In NSW we think the market has continuously underestimated the hit to long term average profits, or at least the increase in costs, that resulted from abandonment of the Cobbora project in 2014/15. That impact is masked by the current high prices but will ensure costs stay up in NSW.

These results only last until Liddell closes after which we will have to see what replaces it.

David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.

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  1. Tom 2 years ago

    Hi David,
    Interesting analysis.
    The hydro should be displaced on an economic basis as you have done, but it isn’t permanently displaced like coal or gas. It will just find another period to generate in. That should bode well for emissions as hydro replaces gas in your VIC and QLD “After”.
    Also 35% is pretty low CF for new wind. The average is more like 40%

    • David leitch 2 years ago

      Good point re hydro. Over the past decade I have learned to take a cautious view of wind capacity factors. I prefer to revise up than down.

    • Jonathan Prendergast 2 years ago

      Quite interesting Tom. It has been expected that more solar will see higher prices in the late afternoon and early evening.

      But as you suggest more solar will push hydro (and gas) more to the evening, as won’t be needed during the day, creating more competition in the evening and pushing down late afternoon and early evening prices. The foreseen problem may be solved before it happens!

  2. Chris Drongers 2 years ago

    Why is the increasing ramp rates for coal in the afternoons as the sun goes down considered problematic given the equally steep and large ramp up required of coal after the overnight minimum at 3-4am every morning ?

    • David leitch 2 years ago

      Hi Chris. It just speeds up the ageing of the plant a bit due to more cooling and heating cycles. I doubt if it is all that problematic.

      • Peter Campbell 2 years ago

        “…It just speeds up the ageing of the plant…” Oh, good! Another benefit of PV.

      • Phil NSW 2 years ago

        See réponse to Chris’s question.

    • Phil NSW 2 years ago

      If the coal plant is kept operational and only ramped up and down the kit is only seeing an increase in flow of fuel and water rather than temperature changes.

      • Chris Drongers 2 years ago

        As temperature doesnt change, do pressures change?

        • Phil NSW 2 years ago

          Effectively the answer is yes. The unit output is controlled by the set point pressure. The boiler therefore will ramp up to satisfy the pressure set point. More heat is therefore extracted from the boiler and converted to electricity via the turbine.

  3. Peter F 2 years ago


    Re prices
    I think that you are right, prices will definitely fall before the NEG takes effect, because by December 30th this year almost all of Hazelwood’s annual output will be replaced by renewables. By December 30th 2020 Liddell’s output will also be replaced. In addition gas prices have fallen about 20% and the Combined Cycle share of gas generation has increased, further reducing the cost of gas generation. If all this new capacity is at zero marginal cost and gas is effectively 30-35% cheaper, then prices must fall.
    In fact they have – In March and April wholesale costs in SA are down 30% on last year and in Victoria about 20%. The old market economists adage, “the best cure for high prices is high prices” is being demonstrated again

    Re demand
    1. Capacity factor for wind is a bit low. Silverton is designed on 44%, Stockyard Hill 40% The new windfarms in Victoria achieved 48% in the first quarter and in most years the first quarter is the lowest output for wind so I think it is safe to use 40% for new wind capacity.
    2. Other than demand to run the LNG plants in Queensland, demand across the NEM has been falling consistently, in spite of population growth. Population growth is starting to fall slightly, energy efficiency is becoming more fashionable and behind the meter solar is exploding so I think a 1%/pa fall in NEM demand is a more reasonable guess. According to the AER demand YTD is 147 TWh. If the YTD figure is until April 20th, it indicates less than 185 TWh demand for the year. That is a 6% fall on last year. Including large C&I plants there will be about 1.4 GW of behind the meter solar installed this year. That alone is equivalent to 1.8 TWh of generation or 1% of NEM demand
    3. In some years hydro may fall, but at the moment storages are in reasonable shape so I think that over a year hydro production will remain roughly the same. Therefore renewable production will come out of gas first as you say but then mainly coal rather than hydro
    4. As new batteries come on stream and duplicate the performance of the Hornsdale reserve, it is likely minimum gas generation can safely be reduced, and therefore curtailment will also fall. Alternatively once curtailment reaches about 10% of annual output for a wind or solar farm, putting in their own storage becomes cost effective.
    5. While most coal plants still have access to captive mines where they pay below market prices for coal, these mines/contracts are gradually expiring and/or the plants wearing out. Marginal operating costs at market coal prices are $55-65/MWh with zero major maintenance, interest or depreciation. New wind in Canada is C$35/MWh Mexico US$17.90 so there is every reason to expect that A$50/MWh without RECs will be broken in the next couple of years. Thus NEG or no NEG renewable generation will continue to be built.
    In summary my estimate is that not only will Liddell be redundant by the end of 2020 but so will at least one other coal plant

  4. Gordon Hervey 2 years ago

    Think volcanic winter conditions affecting solar outputs (and crop yields too) sometime after 2023.

  5. BilB 2 years ago

    The principle important change that will significantly reduce coal consumption is to be installing photo voltaic THERMAL panels rather than all basic PV panels. This will capture up to 10 kWhrs of additional energy per household in the form of heat for hot water currently being serviced by nightime off peak electricity. While there are no manufacturers of such panels at the moment there are good designs which are available to be put into production. PVT’s can be added to existing systems in the form of upgrades as only some of the panels need to have the thermal energy collectors added.

  6. BushAxe 2 years ago

    Still a good basic analysis David (even without the expensive software). I disagree with some of AEMO’s projections but it’s hard to keep up with a rapidly changing market. Construction of more interconnectors will change the goalposts as it will force early retirements by allowing more coal/solar from Qld, more wind from Vic/SA into NSW which is clearly going to be the state dragging it’s feet on new generation.

  7. Askgerbil Now 2 years ago

    The technology option to rapidly cut emissions and put renewable energy in the driving seat of change is conspicuous by its absence.

  8. RobertO 2 years ago

    Hi David Leitch, I am of the opinion that short term you are correct in that if we add only Wind and Solar, Gas will be the loser however when storeage is added then coal will depart and some gas will return short time (peaking) and in the longer term more (all) coal will depart and some gas will also depart. I also think that the wholesale price within the network will remain generally higher (some gameing and some supply causes, than most people expect, even allowing for a small dip). A bigger hit to prices will occure when the networks are written down in 2022 about the time Liddell shuts up shop (if it last that long)

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