WA takes lead and tells utility to close down fossil fuel generation

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WA energy minister instructs utility to close down 380MW of excess fossil fuel capacity, and hails the role of rooftop solar and battery storage in being able to reform a market weighed down by massive fossil fuel subsidies.

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The Muja A and B coal-fired power station
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The conservative West Australian state government has taken the lead over the rest of the country and instructed its state-owned utility to shut down 380MW of fossil fuel capacity in the next two years. It seems certain that much of this will be ageing coal-fired generation.

The decision was announced by WA energy minister and treasurer Mike Nahan as he deals with the extraordinary excesses and perverse market incentives that have created a budgetary nightmare for the state – with the annual cost of electricity delivery more than $500 million more than the state-owned utilities can recoup from users.

Nahan, a former head of the arch-conservative Institute of Public Affairs, praised the role of rooftop solar and the likely benefits of battery storage in helping deliver the reforms announced on Thursday, following a two-year review of the state’s energy markets.

Nahan made three big decisions in seeking to address the huge over-capacity of more than 1,000MW in generation assets, and the massive payments to fossil fuel peaking generators that are rarely if ever used, and equally generous payments to large consumers who rarely if ever had to turn down their demand.

muja wide

The first decision will be to require Synergy, the state-owned generator and retailer, to shut 380MW of excess capacity. Analysts expect this to include the 240MW Muja A and B unit at Collie, which underwent a costly and controversial upgrade just a few years ago.

The second decision is to slash the return on so-called demand-side management. DSM, as it is known, offers returns to users who agree to turn down demand when supply is short.

It is mostly considered a good thing, but the way it was structured in WA meant that $430 million had been handed out to providers, even though their services has been used for a total of just 106 hours on eight occasions – including testing – in the past decade.

The third decision is to gradually ramp down the scale of “capacity payments”, which saw a fleet of gas-fired or diesel-fired peaking power plants built, but rarely if ever used. Instead they received payments merely for being on standby, and in WA those payments were around $120,000 for each MW of capacity per year.

That meant that a 100MW diesel plant – such as the one built near Merredin and highlighted in our story “Dumb and dumber energy choices in WA” – would receive $12 million a year just to be on standby. Some of these plants will likely be shut as the capacity payments are wound back and then replaced with an “auction” system.

Generators in the eastern states, such as AGL Energy, are pushing for capacity payments in the main National Electricity Market, although capacity mechanisms have been dismissed by many as just another subsidy for fossil fuel plant.

Nahan said that his measures and the removal of excess capacity would save around $130 million a year over the next seven years.

Those savings, however, are unlikely to be passed on to consumers, but will be used to reduce the massive government subsidy that supports Synergy each year, and which the WA government can no longer afford due to its declining mineral wealth.

Nahan’s moves are in contrast to the stalemate in the NEM, where there is more than 7,000MW of excess base load capacity, but coal-fired plants are refusing to close because of the advantage it might give to rivals, and because of the costs of remediation. Instead, they are calling for handouts to assist with the closure.

There will be no handouts to Synergy, although that utility might reflect on the money spent on refurbishing the aged Muja A&B units at Collie, which seem most likely to be closed. Some ageing and costly gas generators may also be closed.

Nahan, who in his time at the IPA was an avowed skeptic of climate science and renewable energy, was full of praise for the role that solar has taken in “completely revolutionising” the WA energy industry.

On this remarkable web page, “More power to you”, Nahan tells the story of how WA’s energy woes began with uncontrolled blackouts in WA (the fault of a dodgy grid and unreliable gas), and how market “reforms” led to an unsustainable energy market.

Nahan says solar has given the government the tools to repair it. He noted that despite a record heat wave and four days of 40°C plus temperatures in February, and record demand of 4,047 MW, demand-side management was not needed.

When the WA grid hit that level around 5pm local time on Feb 9, solar was providing more than 200MW, after contributing more than 300MW for much of the day.

“Solar makes perfect sense, given that Perth is Australia’s sunniest major city with around 300 days of sunshine a year,” Nahan said. He also hailed the arrival of battery storage, which will bring the next phase of energy technology.

The West Australian quoted Nahan as admitting it was unlikely a WA government would ever build another coal-fired power station, amid growing gas supplies, demand for solar and changing technology including household batteries and large-scale renewables.

“We are not going to be replacing coal generating capacity,” he said.

Nahan’s moves were welcomed by most, although not by DSM providers. While the removal of excess fossil fuel capacity is likely to smooth the way for more large-scale renewable energy projects, there is still concern over the dominance in the market of the state-owned Synergy.

Synergy CEO  Jason Waters would not be drawn on which capacity would be withdrawn.

“The retirement of excess capacity is aligned to the business’s long term corporate strategy. Synergy is in the process of reviewing the cost efficiency of each of its generation assets to determine the best commercial outcomes for the business and the state and will announce plant retirement plans in due course.”

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19 Comments
  1. Chris Fraser 3 years ago

    Mike was all that really on your initiative ? … come over my place for a grateful cold beer ….

    • mike flanagan 3 years ago

      I wouldn’t go so far as that Chris….. the cost of keeping them cold is still going to be expensive while they make up for the last ten years of denial and obfuscation driven by the Lavoisier mob.

  2. Miles Harding 3 years ago

    These are the sort of surprises I like to see from our politicians!

    There is a hint of warning in this – Synergy is going to make decisions based on their ‘commercial outcomes’. Given their past, this is unlikely to be in the public interest.

  3. Max Boronovskis 3 years ago

    Does anyone know if Synergy, the Department of Finance, the state or federal govt take into account the external costs yet (health/pollution/Co2) of coal fired power when looking at commercial outcomes? (Serious question).

    • Alastair Leith 3 years ago

      of course not, externalities are structurally ignored, there’s no obligation for triple bottom line accounting in any Treasury I’ve heard of in Australia. EV produced a good report on Victorian health and climate costs for coal fired power plants in LaTrobe Valley

      • Max Boronovskis 3 years ago

        Thanks Alastair, just wanted to check where we are at at present. I’m sure at least the measuring and reporting is far in advance of what it must have once been so I’m hoping it’s a continuum and we are heading in the right direction.

        • Alastair Leith 3 years ago

          EPA in most states could be seen in a particular light as a lapdog to government, if so double that for WA. Supreme Court just ruled last December over the Roe 8 Freight-link case in such a way as it may have generalised conclusions about all EPA evaluations of major projects. i.e. they’re not considering important environmental impacts in their own published policy just because it’s a ‘major project’ favoured by the government of the day.

          If things environmental are moving in the right direction, it’s way to slow to save the climate. We are now in a Climate Emergency (which could have been avoided with determined global action beginning 30 years ago).

          Hansen says 1 metre SL rise is locked in by 2050 if ice melt doubling is at the 10 year doubling rate (yet to be confirmed because of the short number of years it’s hard plot the curve even if it is seeming to be exponential).

  4. JeffJL 3 years ago

    In WA the grid is still government owned as is the majority of the generating capacity. The action of closing down power stations is needed to keep to our Paris agreements. Could this happen if the grid and the generating capacity was privately owned (or leased for 99 years with an option of 99 more)? Not without having to pay big $$$$$.

    Mike Nahan. The only IPA member I have any respect for. In fact I may be developing a man crush on him. (It may only be Stockholm Syndrome though).

    • john 3 years ago

      Cripes Jeff

    • Alastair Leith 3 years ago

      Recall it’s the same Natan who built a platinum plated fossil generation system that he now claims the State can’t afford to subsidise. That’s the vision deficit thing that IPA members are burdened with I think, but at least he has the spine to admit his Government went down the wrong path (and most expensive short of commissioning a NPP).

      They didn’t commission much wind in that time (still the lowest LCEO grid generation going today in WA). Barnett infamously claiming WA has ‘quite enough wind farms already’.

      Absent from this announcement is a pathway to 100% RE, other than ‘market forces’ and private rooftopPV and storage will come to the rescue. I’d prefer to see a solid plan.

      • mike flanagan 3 years ago

        It could also reflect the declining influence on the public discourse and policies of Jensen too.

        • Alastair Leith 3 years ago

          as we give thanks.

      • JeffJL 3 years ago

        Realy. He built the generation system? He only took over the energy portfolio in 2013, just in time to have to deal with the huge blow out in the upgrading of Muja.

        No they have not commissioned much wind (nor for that matter solar). Hard to commission RE energy when there was a huge oversupply. Even worse they are looking to buy RE credits from the East.

        You are correct, there is no pathway to 100%RE. No state has, but this is a step in the right direction. If you criticise people who are starting to take steps in the right direction they are likely to turn around and go back. You don’t abuse a toddler as they stumble when trying to walk.

        No it ain’t perfect, but it is a better response than any other Lib government and (as you have noticed) he is big and mature enough to admit when he is wrong.

        • Alastair Leith 3 years ago

          Actually if you commission more wind, it’s gets onto the grid through the zero-price bid onto the NEM, a similar system could work in WA. That would make fossil generation even less profitable and shuttering it if not retiring it would be even more compelling.

        • Alastair Leith 2 years ago

          You’re right of course that credit should be given where credit is due… and the DSM scheme was promptly ended (pretty much a good thing given it’s ineffectiveness but DSM can be very effective as this RMI video demonstrates) and it was Barnett’s (and Liberal Party’s FF corporate sponsors) opposition to Renewables more generally than Nahan per se.

          Though I never recall him voicing support for RE prior to this, and do recall his climate change denials. I also note Mike Nahan sat on the Economics and Industry Standing Committee in State Parliament from November 2008 to August 2012 — plenty of opportunities for working out that the future is zero emissions and if WA doesn’t get in early we’ll miss the boat on natural competitive advantages in renewables and say net-zero emissions minerals processing using RE.

          Still waiting to hear from Nahan/Synergy which coal assets are to get the write-down on Synergy’s books or are they closing privately own coal plants(?)… tick, tick, must be an election on or something.

          • JeffJL 2 years ago

            An election? I had not noticed.

            And for every statement that the Libs make I hope the press ask them if it is a promise or a campaign slogan (Fully Costed. Fully Funded)

  5. john 3 years ago

    The Minister has to be given credit;
    Western Australia has good wind energy resources and wave energy resources so use them it is a gift to the State.
    I can not see any imperative not to utilize the energy given to the state.
    So underlying message is use the free energy to power as much of the state as you can minister to reduce the cost of delivery to your consumers.

    • Pfitzy 3 years ago

      Wind, wave, and I hear it’s fairly sunny over there, too 😉

      Throw in some solar thermal salty bits and you’ve got a tasty recipe!

  6. Andrew Woodroffe 3 years ago

    Well done! The WA Minister Nike Nahan is to be congratulated in making the decision to shut down 380MW of old coal plant, mind you the 2 year phase out is extremely excessive.

    It should also enable/encourage Synergy to start signing up PPAs with some new windfarms – in failing to meet our RET obligations, WA will be short of about 3 to 400MW of wind plant come 2020 if the current lack of action in WA continues.

    Please note that the excessive amount of capacity actually costs WA consumers less than 0.5c/kWh. Retail is over 23c/kWh. Generation, according to the Short Term Energy Market is around 5c/kWh. In other words, WA electricity has far,far greater problems than a little excessive capacity.

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