EnergyAustralia takes $1.3 billion hit due to coal outages and soaring prices

EnergyAustralia, one of Australia’s major coal generators, has warned of a significant loss of $1.3 billion resulting from the combined impact of outages at its coal plants, and the soaring price of electricity caused by the rising cost of fossil fuels.

EnergyAustralia would normally be expected to make a big profit from the soaring wholesale prices, particularly as its Yallourn brown coal generator in Victoria can source its fuel from the neighbouring mining pit.

But multiple and repeated outages at Yallourn, along with problems at the Mt Piper plant in NSW which could not source enough coal due to lower deliveries from its supplier, meant it had to buy high priced power from the wholesale market to meet the contracts it has written to customers.

The revelation from EnergyAustralia’s parent company CLP, which is listed in Hong Kong, confirms the fact that the price cap and market suspension that was introduced last week probably protected coal companies even more than it protected consumers from higher prices.

AGL is another generator that has had multiple outages at both its Loy Yang A brown coal generator in Victoria and its Hunter Valley units at Liddell and Bayswater. Origin had been suffering supply problems for its Eraring coal generator.

CLP said the “fair value” of its forward energy contracts had blown out from the $HK2.2 billion advised in mid May, to $HK7.2 billion ($A1.2 billion) now.

“During the five months ended 31 May 2022, generation output from the Yallourn Power Station has been affected by forced outages while Mount Piper Power Station has been fuel constrained with lower than expected coal deliveries from EnergyAustralia’s coal supplier,” it said.

“This has resulted in the business being short to the contract positions it has previously entered into and the business having to buy electricity in the high-priced spot market to cover these positions.

“For the first five months ended 31 May 2022, EnergyAustralia’s contribution to the Group’s after tax Operating Earnings (excluding the fair value loss) was approximately HK$1.1 billion lower than the same period for 2021.”

But it’s not all bad news for EnergyAustralia. Once those contracts are unwound, it will likely benefit from the high wholesale market prices,

“The increase in wholesale prices that is driving the unfavourable fair value movements should increase earnings for EnergyAustralia’s Energy segment business in the longer term, provided it can purchase fuel as required, generate and dispatch electricity at the higher prices.”

Those high prices are likely to continue because high-cost gas is expected to set the price for the market most of the time, and there are too many barriers for large quantities of renewables and storage capacity to enter the market any time soon.

EnergyAustralia is also one of the principal supporters of the so-called “capacity mechanism” to be applied to coal generators, a move most fear will deliver windfall profits to coal generators, extend their life span, delay renewables and leave the grid exposed to ever ageing and increasingly unreliable fossil fuel generators.

Yallourn, however, is due to close in 2028 after striking a deal with the Victorian government, the details of which have never been revealed.