It’s a bad week to be a coal-fired power station. Origin Energy has recently proposed retiring the Eraring power station, the biggest coal plant in the country, by 2025, while billionaire Mike Cannon-Brookes and asset management firm Brookfield are making a bid to buy AGL and hasten the shutdown of its coal generators.
Unable to compete with the falling price of renewables, coal plants are becoming increasingly uneconomical. Are these two proposed closures part of a trend and, if so, when can we expect other power stations to follow suit?
Professor Ariel Liebman, director of the Monash Energy Institute, says that Eraring’s closure is “mostly a commercial decision”.
“The economics don’t stack up,” he says.
Coal power stations have limited technical lives in any case, but the cost of keeping them running as they age can hasten their closure. “Technical life and economic life are intimately intertwined,” says Liebman, adding that there will be “unavoidable” increases in electricity prices following Eraring’s closure, but “higher energy prices are not likely to last long, as this announcement will bring forward several large wind and solar projects.
“It may even finally kick off an Australian offshore wind revolution.”
Eraring’s closure is unlikely to cause the sort of spike in electricity prices that occurred with the shutdown of the Hazelwood power station in 2017 on five months’ notice. This is because Origin has announced its plans three years ahead of time.
In a statement, Origin said the company “will consult with its Eraring workforce about the timing of any potential retirement, as well as providing a generous support package during any transition period.
“This will include re-skilling, career support and redeployment into new roles, where possible.”
In an article on The Conversation, University of Technology Sydney researcher Dr Chris Briggs has pointed out that while the three-year notice period is in line with the Australian Energy Market Operator’s (AEMO) new regulation, other plants may shut down more abruptly.
“Energy market players don’t consider the penalties for not complying with notice requirements an effective deterrent, compared to the financial incentive to hang on and hope for a price uplift when other plants close,” writes Briggs.
Does that mean that Eraring’s closure will prolong the life of nearby coal stations?
“On balance, I think not,” says Liebman, “because something else will come in instead. Anything that retires [will be replaced by] some combination of solar, wind and storage, and the average cost of that will continue to come down. So that will keep the wholesale prices lower, making it just as compelling a case to close down any other station.”
However, a clear government plan for phasing out coal would limit the risk of electricity and unemployment spikes.
“The cost impact and grid stability issues together highlight the need for a coordinated energy-climate policy that includes a mechanism for accelerated retirement of coal,” says Liebman.
Given this, Cannon-Brookes and Brookfield’s proposal for AGL is welcome.
“In the absence of proper government policy around accelerated retirements and energy transition, this is one of the second-best options,” says Liebman. “The private investment sector comes to the party with some left-field approaches and shows how it could be done.”
Liebman adds that the bid to buy AGL likely makes economic sense as well, although it’s tricky to work out the exact feasibility without looking at Cannon-Brookes and Brookfield’s internal modelling.
He says that if someone wants to become a renewable-energy investor, buying an existing energy company and transitioning it “may be more expensive, but less risky, than setting up a whole $12 billion company from scratch, which is what you would otherwise have to do”.
So, if coal power is headed for the exit, when can we expect it to be gone?
In its draft 2022 Integrated System Plan, AEMO estimates that all brown coal and two-thirds of black coal could be gone from Australia by 2032.
“It may even happen quicker than that,” says Liebman.
“Or it may be a bit slower, but there certainly seems to be a fairly aggressive reduction in coal capacity.”