Australia EnergyAustralia says the removal of the carbon tax should be good for the long-term prospects of its coal-fired generators, despite the fact that they are battling record low wholesale electricity prices, and unprecedented falls in demand.
The company, one of the three big retailers in Australia, revealed first half earnings as part of its Hong Kong-based parent CLP Holdings reports on Thursday. It revealed that its Australia business recorded operating earnings of HK$585 million – compared to a loss of HK$45 million in the first half of 2013.
But this figure included a net benefit of HK$583 million from compensation paid for its Yallourn brown coal generator in the Latrobe Valley from the carbon price delivered through the so-called Energy Security Fund.
This was a fund set-up by the government to protect coal-fired power stations against closure. Former EnergyAustralia CEO Richard McIndoe had warned that the “lights would go out” if this compensation was not awarded.
As it turns out, the carbon price compensation has been a windfall for the brown coal generators, and Australia now has a massive surplus of base load capacity – so much so that EnergyAustralia has closed the 1,000GW Wallerawang coal generator in NSW, less than 12 months after buying it.
EnergyAustralia said the removal of the carbon price will cause short-term pain from the lack of compensation, but will improve the long-term outlook for the business.
“Longer term this change should enhance returns from our low-cost base load power stations,” it said, echoing comments from AGL Energy, which also said the removal of the carbon tax would be great for its growing coal-fired generation business.
In the first half, EnergyAustralia said it had witnessed lower wholesale electricity prices and the lowest ever price volatility. (Historically, generators have profited from such volatility, but this has been removed by the increase in renewables).
The record warm weather and the impact of rooftop solar and energy efficiency had also curbed demand, with mass market sales volumes down 12.6 per cent for electricity and 15.9 per cent for gas.
EnergyAustralia also said it suffered from increased competition, and recorded a net loss of 66,800 customers in the first half of the year, or 2.5 per cent of its customer base.