Coal seen as biggest threat to Victoria power supply

The biggest threat to Victoria’s power supply over the coming decade is not the growing share of renewables on the grid, but increasingly unreliable brown coal power plants, and government policies designed to prop up struggling black coal generators.

That is the key finding of a major new report from Victoria University’s Victoria Energy Policy Centre, which seeks to determine how best to ensure the reliable supply of electricity in the state out to 2028, factoring in fossil fuel plant retirement, projected renewables development, government policies and regulatory arrangements.

The National Electricity Market-based modelling finds electricity production by Victoria’s three remaining brown coal generators – Yallourn, Loy Yang A and Loy Yang B – would be largely unaffected by the expansion of renewable generation in Victoria and elsewhere on the NEM.

Rather, the Victorian coal plants’ worst enemies will come from within: Their own advanced age; and the black coal generators in the northern NEM states of New South Wales and Queensland which, under threat from cheaper renewables and likely to be forced into retirement ahead of schedule, could be propped up by government policy.

The report notes that while the hierarchy of cheap power generation runs from renewables (cheapest) to brown coal, to black, repeated promises from federal energy minister Angus Taylor to ensure existing coal generators are run “flat out” until their day of retirement could mess with this equation.

“We have modelled this as subsidies to black coal generators in NSW and QLD so that they are able to offer their production to the market at a slightly lower price than brown coal generators,” say the report’s authors Associate Professor Bruce Mountain and Dr Steven Percy.

In this scenario, brown coal generation reduces significantly, since aggregate demand is unchanged and brown coal cannot compete against renewables, with no avoidable production cost.

Maintaining black coal generation in 2028 at 2018 levels, as Taylor would have it – a highly unlikely scenario even with the most generous of subsidies – would have an even more radical outcome, Mountain and Percy say.

“[This] would almost certainly lead to the closure of two of the three Victoria brown coal generators or alternatively would require that all of the 9,000MW of renewable generation likely to be commissioned between now and 2023 will be forced to idle.”

The next biggest risk to Victoria’s reliable power supply – other than the risk attributable to possible protectionist policy to protect black coal – is the “demonstrated unreliability” of Victoria’s brown coal fleet.

How unreliable? Figure 5, above, shows the annual equivalent outage rates of the plants (and Hazelwood up to its closure), measuring the percentage of time over a year the generator is not available.

As the authors point out, a trend of consistently high outage rates at Yallourn W and Loy Yang A is clear in the chart, and in the year to date Loy Yang B has joined them in demonstrating poor availability.

“The outage rates are despite extremely high spot prices (described later) which provide very strong incentives for production,” the report says.

Add this poor availability to a “concentration of fossil fuel supply in three stations with just 10 units amongst them,” and an “increasingly precarious social licence to operate,” and you have a perfect storm of unreliable supply.

The report finally takes a swipe at Cogati – the Australian Energy Market Commission’s divisive blueprint for new generation and transmission – naming its “massively complex” proposals among possible barriers to projected renewables growth.

“To protect black coal generators, the Commonwealth government may be tempted to slow down renewable generation expansion by erecting barriers to entry by, for example, supporting the AEMC’s massively complex COGATI proposals,” the report says.

“We expect this will raise prices and accelerate the rate of grid defection. Furthermore, we doubt existing coal generators will respond to such protectionist policy by investing to improve the capability and reliability of their coal generators in what is likely to be rapidly declining market.”

“This is unsustainable and several black coal generators are likely to close sooner than currently announced,” the report says.

“A policy to protect coal production will simply bring forward brown coal generator closure. Likewise, clamping down on the rate of renewable expansion will raise prices and accelerate grid defection.
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