Can coal generators fool the government a second time?

It is just three years since some of the heads of Australia’s largest coal fired generators warned that the lights “would go out” in Australia if the carbon price was introduced, and coal generators were forced to close.

Richard McIndoe, the former boss of EnergyAustralia, which owns the giant Yallourn brown coal generator in the Latrobe Valley, was at the forefront of these claims, predicting it would be “lights out overnight” for Victoria.

It was, of course, absolute nonsense, as pointed out at the time by energy analysts, economic experts such as Ross Garnaut, and any number of environmental NGOs. But the government fell for it hook, line and sinker, and doled out billions of dollars in “compensation” anyway.

Now the absurdity of these claims have been laid bare by none other than the Australian Energy Market Operator, which says five power stations the size of Yallourn could be closed down and consumers wouldn’t know the difference. The lights would not go out.

That’s right, five power stations of the size of Yallourn – the generator that EnergyAustralia boasts provides 22 per cent of Victoria’s electricity, could be closed, and nothing would change. Two of those generators could disappear in Victoria, and there would be no impact on deliveries.

In Queensland, the situation is just as dire. The Queensland government is trying to sell both the Stanwell Corp and CS Energy generation companies, but the AEMO data suggests that the entire CS Energy portfolio of nearly 3GW would not be needed in a decade’s time. That’s a direct result of a Queensland government decision of more than a decade ago to overbuild capacity – with cheap government finance – to try and bring down the cost of wholesale power.

All told, AEMO estimates that between 7,650MW and 8,950MW of capacity is surplus to requirements across the NEM – the result of falling demand that has been the result of growing energy efficiency, the growing impact of rooftop solar, a decline in manufacturing, and reduced consumption due to rising prices.

A total of 7,500MW of capacity would need to be removed from the NEM to affect reliability issues. That is equivalent to around one quarter of all the base load capacity that has been built in the country. It is not needed.

“For the first time in the National Electricity Market’s (NEM) history, as a result of decreasing operational consumption, no new capacity is required in any NEM region to maintain supply-adequacy over the next 10 years,” says the AEMO report, Electricity Statement of Opportunities for the National Electricity Market.

Of course, the coal generators are now trying to turn this into their advantage. Having succeeded in diluting the impact of the carbon price, they are now seeking to do the same with the other big environmental energy policy, the renewable energy target.

They are arguing that there is already too much capacity, and by forcing more renewables into the market, that will force more coal fired generation out the other end.

This AEMO publication will now doubt be used to fuel those claims. But who’s responsibility is it for the excess capacity?

As RenewEconomy reported last month, most of the increase in generation has come not from the addition of wind farms or other large scale renewabls, but by a big rollout in fossil fuel generation.

This graph (above) comes from EnergyAustralia itself. The underlying theme is that the generators are desperate to protect the value of these recent investments, just as the network operators are seeking to protect their “gold plated” investments in poles and wires. The costs of both are being passed on to consumers and simply overwhelm the impact of increased renewables.

In fact, as numerous analyses have pointed out, the increase in renewables actually serves as a dampener to the rising wholesale prices – coal generators would like more expensive gas to be burned because they benefit from the rise in wholesale prices as well.

When there is too much sun and wind, and the share of solar and wind increases, then the wholesale price falls. As the government’s own forecaster, ACIL Allen, pointed out, cutting the RET might boost the coal generator’s revenues by around $5 billion. Others say it is much more.

So, the fossil fuel generators are trying to fool the government again. The tragedy is, given the make-up of this government, and its RET-Review panel – it is very likely to succeed.