Shutting down the dirtiest of Australia’s coal-fired power generators in the next couple of years would have a “negligible” effect on electricity prices, while also helping to the nation’s emissions reduction task and addressing an oversupply of capacity in the market, a new report has found.
The analysis, by energy and emissions market advisory firm RepuTex, models the introduction of new legislation which would see emissions-intensive generators – like Victoria’s Hazelwood, Loy Yang A, Loy Yang B, and Yallourn – bid competitively for the cost of closure of their plant.
This cost would then be paid for by power stations that remained in operation, proportional to their carbon emissions.
The report found that removing a brown coal generator in 2017-18 would lead to just a 3 per cent increase in the average annual wholesale pool price for electricity, or just $2.20/MWh to $3.00/MWh, depending on the size of the generator retired.
For residential electricity bills, falling network costs may completely offset any cost impact of the new policy, with retail energy prices expected to fall out to 2020.
The policy plan – initially proposed by Australian National University academics Frank Jotzo and Salim Mazouz, and potentially adopted by Labor under its new policy – would help to cut emissions from the electricity sector, but would do so without the use of public funds, and without a carbon price.
Incentivising the closure of brown coal power plants would also help drive the decarbonisation of the NEM to meet the government’s 2030 emissions reduction target, and to address the oversupply of generation capacity in the market.
And according to RepuTex, now is probably one of the best times to get such a policy plan underway.
“Unlike the period of climate policy development from 2007 to 2013, which took place while distribution and transmission costs were increasing, we are now likely to see downward price pressure and greater competition over the next 12 months,” said RepuTex’s associate director of research, Bret Harper.
“That dynamic means it is a good time for new policy – policymakers have a window of opportunity to drive reform with minimal cost to consumers,” he said.
As RepuTex notes, Australia’s heavily coal-powered electricity sector is responsible for over one-third of national greenhouse gas emissions.
Last year, the NEM recorded total emissions of 164 Mt, with RepuTex analysis indicating that closing one brown coal-fired generator in 2017-18 would reduce emissions by 2 to 6 million tonnes per year, or between 6 to 18 million tonnes over the three years to 2020, depending on the size of the generator removed.
“Despite an established ‘oversupply’ in the system, we are unlikely to see any retirement of brown-coal generation unless this sort of policy is implemented, so the status quo will simply continue,” he said.
“Direct regulation to ensure the orderly exit of emissions intensive generation is the best way to minimise the cost to consumers, reduce national emissions and get industry on board.
“Placing the cost of closure on industry, but allowing industry to benefit from increased pool prices, means that generators are incentivised to participate, and taxpayer funding is not required,” Harper said.
RepuTex notes that the policy proposal would, however, need to be supported by a longer-term policy to decarbonise the sector.
“In reality, there is no silver bullet to curb Australia’s rising emissions challenge. Industry funded auctions have the capacity to make immediate emissions reductions within the power sector, however, an emissions baseline or cap will also be needed to guide our electricity market to the 2020 and 2030 targets,” Harper said.
