Origin: How wind and solar will eat market of baseload coal

As the two mainstream political parties finally reached agreement on the renewable energy target to get investment in large scale wind and solar happening again – after a near two year investment freeze – the base load fossil fuel generators, especially coal, are going to feel the pinch.

That much is clear from these graphs from Origin Energy boss Grant King at a recent conference hosted by Macquarie Group. Solar and wind are lowering the case for base load generation, he says, with wholesale prices to stay low, and base load demand being increasingly eroded by the growing emergence of rooftop solar.

These two graphs below illustrate the point. The first on the left assumes 14TWh of additional renewables over the next five years (actually, the deal negotiated by the Coalition today will probably allow for an extra 17TWh). In any case, the result is that it pushes out the supply curve, meaning less opportunities for existing coal and gas generators.

The second graph to the right is even more interesting. It assumes that the amount of rooftop solar will nearly treble to 9.5GW – something that Origin says is possible well within a decade. In that scenario. the net demand from the grid is barely above what is considered to be “minimum generation” for large parts of the day.

This, as the next graph serves to highlight, will “hollow out” the load duration curve, lowering prices for baseload generation and increasing volatility and peak prices, according to King.

These outcomes are not as disadvantageous to Origin Energy as you might think.

While the National Elecrticity Market is said to have 9,000MW of surplus base load coal capacity, Origin Energy is actually “short” generation, meaning that it has to buy off market to meet the demand from its customers.

In a market where wholesale prices are falling, that is potentially an advantage. And it has more “flexible” generation, such as gas-fired generators, that can cope with the variations in wind and solar output.

And, Origin is also pushing it customers to embrace solar. The company that once derided solar households as “free-riders” on the grid, is now extolling solar households as “sun-stealers” in a new marketing campaign.

That tells you just how much the utilities are changing.