Coalition still kidding itself about price of coal generation

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Scott Morrisson is right to dismiss new coal generation as uneconomic, but his estimates of existing coal costs is half what NSW back coal generators charged for off-peak baseload this past winter. It is time the Coalition stopped kidding itself.

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Did I ever tell you how beautiful you look in black? Credit: AAP Image
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Credit: AAP Image

Treasurer Scott Morrisson, the man who brought a lump of coal into parliament last year and waved it around like a demented monk, got at least one thing right about the Coalition’s hard right push for a new coal fired power plant: it doesn’t make any financial sense.

Morrison made that clear last August and again on Wednesday, in response to the so-called Monash Forum’s demands that the federal government fund a new coal-fired generator in the Latrobe Valley, under the fanciful idea that this would somehow lower energy prices.

“It is false to think that a new coal-fired power station will generate electricity at the same price as old coal-fired power stations,” Morrisson said.

In fact, he said, it would likely be double the price of existing coal generation.

That much is true. But the problem is, even Morrisson’s figures are out by a factor of two, and it highlights the absurdity of not just the Monash Forum’s demand for a new coal generator, but the entire Coalition’s defence of coal in the name of “cheap and reliable” energy.

Morrisson claimed that existing plants were bidding into the national electricity market at $30 or $40/MWh – and that a new HELE coal plant would bid into the system at about $70-$80/MWh

But these numbers are wrong and it is clear that Morrisson has either not read the recent report into wholesale prices he commissioned from the Australian Energy Regulator, didn’t understand it, or is being deliberately misleading.

That report focused on prices in Victoria and South Australia following the closure of the Hazelwood power generator. Much of the focus has been on the role of gas generation, but it was the role of the NSW coal plants that was particularly fascinating.

It shows that two NSW black coal generators actually set the price in the Victoria wholesale market around 25 per cent of the time. In fact, they have have done so for years, particularly at times of low demand when gas is not needed.

But over the last 18 months, that price charged by the NSW black coal generators when they set the price has more than doubled to more than $80/MWh.

Above is the price set in Victoria by Origin Energy’s Eraring plant, where prices jumped from the low $30s/MWh in 2016 to more than $81/MWh through the winter months of 2017 in Victoria.

And this next one shows the price setting by AGL’s Bayswater black coal generator, where its market setting prices leaped from around $40/MWh to more than $90/MWh in the depth of winter.

Remember, these are prices set not at times of peak demand, but in off-peak, often at night, usually in winter. It is the price of good ol’ baseload. And it certainly isn’t cheap.

To reinforce this point, another recent survey by the Australian Energy Market Operator points out that the volume weighted price of NSW black coal generators – which includes all offers, not just the market setting ones – has not been below $50/MWh for the last three years at least.

In last year’s winter, the average price offered by NSW black coal generators was more than $70/MWh, according to the AEMO data.

And we know from the latest profit results of AGL, Origin Energy, EnergyAustralia and the government’s own energy generator, Snowy Hydro, that this is not because of the rising cost of supply. It’s because they are screwing the market, and the consumer along with it.

The AER report laughingly concluded that it had found “no evidence of transient market power” being exercised by the major generators since the closure of Hazelwood.

“Our analysis did not identify instances where bidding behaviour we normally associate with the exercise of market power significantly affected average prices in Victoria or South Australia,” the AER wrote.

What they probably mean is that there was no extreme events when generators deliberately withdrew capacity to force prices up to stratospheric levels, as they have been want to do in the past.

(That’s probably because all they had to do was wait for one of the 53 coal fired generator trips in the last few months to see the opportunity to jack up prices, as they did relentlessly)

Did the AER look at their own graphs? If it’s not market power, then how do they explain the doubling in the bidding price by the NSW coal generators. Yes, there has been some rise in coal supply costs as the subsidies legacy contracts that underpinned their generation expires, but not a doubling.

And how, do they, or even Morrisson, explain the significant increase in the bidding prices of the government’s own retailer, Snowy Hydro.

This graph above shows that when Snowy’s hydro assets set the price in Victoria, they too were more than double what they had been a year earlier, or even treble what they had been in the December and March quarters a year earlier.

We can be certain that the price of hydro power certainly hasn’t jumped. Market power? Nothing to see here, says the energy market’s Inspector Plod.

It should be noted that the cost of a new coal fired generator is likely to be at least double Morrisson’s estimates of $70-80/MWh. Bloomberg New Energy Finance puts it at $130/MW at the very least, and likely a long way north.

Even the cost of upgraded existing plant, like Liddell that the Turnbull government is so desperate to keep open, is put by AGL at around $106/MWh – that’s at least 20 per cent more costly than the renewables and storage alternative.

And while the most efficient NSW black coal generators are asking $80/MWh for their output, the developers of solar and wind farms are signing contracts to sell their output – inclusive of any renewable energy subsidies – at around $55/MWh or less. Solar is coming in below $70/MWh, and coming down fast.

So, yes, cheap energy does exist. But it certainly ain’t black coal.

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43 Comments
  1. Ray Miller 6 months ago

    Isn’t anyone also going to factor in the air pollution (that’s if you call emitting mercury in to the air pollution?)? For new HELE plants they should be required to meet high air quality standards which many of the current plants do not meet which would most likely further increase the price?
    But since the world in on track for greater than 1.5 degrees of warming in under a decade, I can certainly say no new coal plants will be built and I foresee that by 2026 all coal plants will forced to be shut down. All that coal we have is worthless and in fact a liability. The question is what renewable capacity (and where) will be online and what are the forced consequences likely to be for the citizens? Will the energy price be many times what it is now or will we see rolling blackouts or a combination of both?

    • Joe 6 months ago

      Ray, we all know that Coal-fired power plants, traditional type or the HELE type, don’t spew out any pollution (yes, sarcasm). I mean, if they did pollute the air then our Environmental Laws for Clean Air to protect public health would be shutting down these enviro abominations. On environmental and business grounds there is no case for new Coalers to be built. But so long as The COALition is sitting in the Big Chair they will make up some sort of case, purely political of course, to build new Coalers. The question is, are the punters educated enough about climate and environment to say NO WAY and toss The COALition out.

      • john 6 months ago

        No the punters are not educated because they watch commercial media or read News Rags all the same and full of disinformation.

        • Hettie 6 months ago

          But the punters are hurting and we’re angry. Nearly 2 million un- or underemployed. A third of those who do have work are casuals and can’t get a home loan. Young people can’t buy houses, can’t afford to rent anything better than a soggy shoebox. Wages flatlined in absolute dollars, going backwards vs the CPI.
          Even a major, “Look over there! It’s a terrorist” ploy won’t work now because, like the boy who cried wolf, they have done that too often.
          The polls have been steady on 54/46 for months.
          They are going down, bigtime. But when?

          • Joe 6 months ago

            Two Tonguer Turnbull will be gone as PM before years end and The COALition govt at the next election.

          • Hettie 6 months ago

            There was some twitter chatter yesterday of a leadership spill, but nothing in this morning’s news.

          • Joe 6 months ago

            The Chatter will be getting noisier on Monday for Turnbull’s ’30 Not Out” score

    • RobertO 6 months ago

      Hi Ray Miller, I am hoping that coal will be gone by 2023-2024. Gas will last longer but part of this change will be H2 cycle (including making CH4 or call it Man made Natural Gas) as the storage system is weeks’ worth of RE energy. Short term storage (Batteries and PHES both short and long term) will need to grow. Lots of people think the prize is cheaper Electricity via local, but the prize is life on this space ship we all live on. From an engineering point if the changeover is not managed we will have disruptions, however we still have time to plan it (AEMO ISP is coming, AEMC released new rules for Demand Management starting 10 April 2018 side issue what about the 5 minute rule easily done in less than 3 months now).
      Time Frames are (rough estimates as we need to ask “Do we have the will to do this?” and are we prepared to pay the costs of doing it reasonably quickly).
      Batteries Under 1 Year.
      Solar Farms Under 2 years.
      Wind Farms Under 5 years.
      PHES System 2 years to 10 years.
      Gravity Storage Hydro to Peaking Hydro 3 to 5 years.
      Interconnects 5 years minimum.
      Hydrogen systems some are off shelf already (You can buy them today)
      As a side note the efficiency of the system is a boardroom question that is only discussed after the boardroom has decided “we can make a profit doing this, or after the boardroom has been told that this will save millions (Boardroom discussions are better for making a profit of some $ amount then a discussion about saving several thousands of $ and the savings are often airy fairy so those need to be bigger to convince the board).
      In May 2017 I told my bosses that “Electricity will rise 10% year on year for the next 5 years (we have both Residential and Commerical bills contracted for another 2.2 years) for the Residental dispite RE generation prices falling and likely to continue to fall. We contracted for 76 Kw Solar about 6 Nov. 2017 and installition would start this week (Hertiage Issues).

      • Hettie 6 months ago

        All good info, but you left out the essential comparators: coaler, nuclear.
        Time from concept to commissioning.
        Do you have those readily available to add, for the benefit of the fossil fools?

        • RobertO 6 months ago

          Hi Hettie, currently Nuclear is estimated at 15 years minimum and coalers 5 years if you were building on an existing coaler site 7 to 10 years on a new site and with everyone of these time frames issues can arise (There a Coal power Station in Kanas USA that got Governer approval in 1993 that is still in the EPA Courts in Nov 2017 (24 years later).
          On that other issue “Never tell the enemy that you have a contrributing cure, they will use it against you to delay your plan or even deny you, your plan”. I will support it the day the enemy is gone or retired.

          • Hettie 6 months ago

            Thank you.
            Other issue? I’ve written so many comments today that I’ve lost track, and I can’t relate to your metaphor.

    • juxx0r 6 months ago

      All we gotta do is pump the exhaust through parliament house and it will either be clean, or we get two for the price of one.

  2. Grpfast 6 months ago

    It’s pretty obvious that the LNP are responsible to masters other than the Australian electorate. And they’ll pay for it.
    In the mean time and for the future we will all continue to pay for it through their lack of proper government.

  3. john 6 months ago

    With the Monash members in place they wish to build a great big new shiny HELE generator which will cost billions of dollars but that is ok, you the tax payer will pay for it then the plan will be to sell it off for bugger all. Otherwise the plan may be to subsidies a private company to build it and write off the injection of capital so the private company has a business case to supply energy.
    It does not matter which way this plant is built it will not be viable, however what is needed in the mean time is a lot of investment into Solar, Wind, PHES and Concentrated Solar and Storage.
    Not piddling 1 MW systems but gigawatt systems especially with storage.
    The sooner the country gets into building these kind of energy producers the better to move toward a low cost of energy.
    The next area to look at is the transmission system where the cost of delivered energy has seen the largest increase.
    As every inquiry has found this is the area where costs are going up.

    • Hettie 6 months ago

      Stop fretting. There will be a change of Gov’t long before they get to the stage of signing any contracts.

  4. JohnRD 6 months ago

    The per kWh cost of generating coal fired power will be essentially constant for a given generator with a long term coal supply contract. Yet, because of our obsession with the sort of markets change the per kWh price on the basis of demand and a generators ability to play the markets we get:
    “And this next one shows the price setting by AGL’s Bayswater black coal generator, where its market setting prices leaped from around $40/MWh to more than $90/MWh in the depth of winter.”
    It would make a lot more sense to have long term contracts for capacity, contracts where the bulk of the price is fixed with minor changes to reflect the marginal cost of actually generating and maintaining various levels of readiness to start generation. Such a system would provide the sort of certainty required to get competitive bids.

  5. Shilo 6 months ago

    So pray tell, the market in queensland for power averaged $34 per MWH in 2009, 33.3 in 2010, 30.97 in 2011 and in 2012 $29.07.
    What has happened since??? Please dont tell me the coal fired plants have gotten twice as expensive to run!!!!
    Looking at them, The good ones, they have improved. In general coal plants over time make many small improvements year after year.

    • Hettie 6 months ago

      As I understand it,
      1 the Newman LNP Gov’t was elected.
      2 although he didn’t sell off the state owned coalers, he told them to go for broke on peak pricing , like the privately owned ones in other states.
      3 the Paluczez (I’ve forgotten how to spell her) ALP Gov’t was elected.
      4 she told them to stop doing that.

      So the prices were reasonable under Labor, they shot up under LNP, then went down again under Labor.
      Someone will correct me if I’m wrong. It happens.

      • Tom 6 months ago

        P.A.L.A, Sydney Zoo Canberra Zoo UK

        • RobertO 6 months ago

          Hi Tom, You have too much time on your hands.Very well done!

          • Tom 6 months ago

            I can’t take the credit – it’s not original. It was described this way by one of Palaszczuk’s Labor colleagues on the Queensland election night.

        • John Saint-Smith 6 months ago

          Eternally indebted! Now all I have to do is to remember the mnemonic!

        • Hettie 6 months ago

          Oh clever one. I do love a good mnemonic.

      • John Saint-Smith 6 months ago

        To be fair, Hettie, Palaszczuk found herself back in office with government debt still mounting. As Bligh and Newman found out to their cost, the Queensland voters don’t like people who sell off their precious publically owned assets. But then she discovered that state owned Powerlink is one of the most profitable corporations, state or commercial, in Australia, and its returns to government coffers provided a welcome source of funds for the inevitable hospitals schools roads etc..

        This hyper-profit was made possible as other state governments and private power gentailers rorted the electricity market, as Renew Economy has reported on many occasions. Wholesale electricity prices in Queensland, which might have been held low by the state government owners, were allowed to profit by selling electricity interstate at inflated prices which were then passed on to Queensland customers. If you look at the East Australian Grid state by state, each has its own unique mix of electricity sources and ownership arrangements, but all somehow managed to cause their wholesale prices and charges to consumers to rise outrageously during the past decade.

        But as an election loomed in which power prices were being used by the Lazy Negative Party as a whip to beat Labor, Ms Palaszczuk ordered the state owned power generators and distributors to back off the price gouging – at least until the election was over. We haven’t seen any sign of a return to the old days yet, but I hear that the redistribution of GST revenue to the states is going to change, and Queensland is going to lose hundreds of millions. Who knows what Annastacia will do, she’s a pragmatic politician after all. Have no doubt that the opposition will hammer her about any tax, charge or royalty increase – that’s what oppositions, especially the Lazy Negative ones always do.

        • Hettie 6 months ago

          Thanks John. So my understanding, basically on the right track, is now much clearer

  6. John Saint-Smith 6 months ago

    “But these numbers are wrong and it is clear that Morrisson has either not read the recent report into wholesale prices he commissioned from the Australian Energy Regulator, didn’t understand it, or is being deliberately misleading.”

    If he were a company director or CEO who failed to do due diligence for any of these alternative scenarios, Morrison could find himself at the wrong end of a forensic audit, and be facing charges. If he were a private citizen investing his own money, we’d just shrug and say ‘buyer beware’, and he’d suffer the loss.

    But in this government, the ‘responsible’ minister will just cook up some cock-and-bull story about ‘external forces’ or ‘unforeseeable circumstances’ or most likely, find some way of blaming Labor for his failure – indeed he has used all three excuses to ‘explain away’ the persistent deficit which was a ‘debt and deficit disaster’ under Labor.

    If we want better government, we need to make ministers responsible for their actions, especially when it is clear that they have repeatedly ignored all expert advice.

    • Hettie 6 months ago

      Well said, John. If I could give you more than one uptick I would.
      As RdN said yesterday, “we need a Federal ICAC with teeth.” His words.
      Big, long, very sharp teeth. My words.
      And as Labor wants that too, I think we will get it.

    • neroden 6 months ago

      A Royal Commission can make ministers responsible for their actions… but with the LIEberals controlling House and Senate, who’s gonna organize one?

      You have to vote them out.

      • John Saint-Smith 6 months ago

        They don’t actually control the Senate. That’s why we have a banking Royal Commission – of sorts, and a general moderation of the extreme policies of the LNP hard liners (the Lying Nasty Portion). We must be mindful of the rules of the game. Ultimately, if you want a Royal Commission with teeth, you have to play the political long game. Still with 30 Negative News Polls the Lazy Negative Party is living on borrowed (negative) time.

      • Hettie 6 months ago

        Hmm. Like the RC into youth detention in NT has made that minister for just about everything responsible for the atrocities at Don Dale?
        But yes, we must vote them out, and we will.

  7. Tom 6 months ago

    Brilliant article. Thanks.

  8. Michael Eckert 6 months ago

    I am a bit confused here. It looked like the minister mis-used the term ‘price’ but actually meant ‘cost’. His numbers seem aligned with published LCOE numbers of old and new coal generation. Obviously, this article is quoting wholesale prices bid by the various generators. Certainly these are different things than the cost of generation? And the difference is the profit?

  9. solarguy 6 months ago

    Giles, What is the wholesale price of shoulder and peak power in NSW. IPART is suggesting there be a reduction in FIT of 5cents/kwh as the wholesale prices have come down?

    At 90c/kwh in off peak, surely peak is going to be a lot more expensive.

    • Hettie 6 months ago

      Doesn’t $90/MWh = 9c/kWh?

      • solarguy 6 months ago

        Ah yes it does, WTF was I thinking.

        • Hettie 6 months ago

          😉

          • solarguy 6 months ago

            What the hell does that mean?

          • Hettie 6 months ago

            It’s a winking smile face. Disqus can’t cope with emojis. Or it couldn’t.
            Let’s see.
            😉
            Oh! Yes it can. Secret Upgrade.

          • solarguy 6 months ago

            Yep it works, the mystery is solved.

    • gasdive 6 months ago

      There’s no such thing as wholesale peak and shoulder prices. Electricity is sold two ways. By contract far ahead, and by spot auction. The spot auction is different to most. Each seller bids a price, then they’re accepted, starting at the lowest bid until demand is met. Then everyone gets the price if the last accepted bid (this is what the article referred to as the price setting bid)

      • Hettie 6 months ago

        System carefully crafted to maximise cost to the consumer and profit to the big gentailers. Now being disrupted by renewables and the HPR.
        Yay.

  10. Robert Comerford 6 months ago

    Speaking of inappropriate activities by this govt and people facing charges, should Canavan’s continued harassment of the management of AGL be viewed as abuse of power?

    • Hettie 6 months ago

      It is certainly advanced fuckwittery, and practical demonstration that the dim expression on his face is a good reflection of his intellect.

Comments are closed.