By Mike Foley and Nick Toscano
Inadequate preparation for the energy transition and years of ad-hoc political interventions have badly damaged Australia’s electricity market, leaving governments little choice but to keep cutting deals to prop up coal-fired power plants to avoid price rises and blackouts.
When the National Electricity Market was created in 1998, coal generators dominated the energy mix, accounting for more than 80 per cent of the grid’s electricity. While the fossil fuel still makes up to two-thirds of the supply, the rollout of cheaper and cleaner renewable energy is increasingly undercutting the economics of ageing coal-fired power stations, which have been bringing forward their closure dates and are expected to have nearly disappeared from the grid by the first half of the 2030s, according to the most-likely energy market forecasts.
Coal power is being squeezed out of the grid by cheaper renewables.Credit: AP
Governments are becoming increasingly nervous that not enough new renewable energy and storage projects are being built to keep power supplies and prices stable as the wave of coal generator closures draws closer.
The Grattan Institute’s Keeping the Lights On report warns that the energy transition is happening so quickly, and the preparation has been so haphazard, that state and federal governments must “accept this as a period of muddling through, with as many Band-Aid fixes as are necessary, to keep the lights on and prices down”.
“Australia’s great energy transition – from fossil fuels to renewables – is not going well,” said Tony Wood, the Grattan Institute’s energy director and the report’s lead author.
“Governments have lost faith in the market being able to deliver enough electricity to the right places at the right time, consumers are fuming about high power prices, and investors have been spooked by frequent and unpredictable government interventions.”
Across the eastern seaboard, officials are worried about a repeat of 2017, when the Hazelwood coal plant in Victoria’s Latrobe Valley gave just five months notice before it shut, citing unfavourable market conditions. The warning was too short for other companies to build replacement power generation, and a period of higher wholesale electricity prices followed.
Victoria has since struck secret financial deals with two other Latrobe Valley coal plants, Yallourn and Loy Yang A, to ensure they don’t close unexpectedly. NSW is in talks about doing the same with the Eraring plant in the Hunter Valley.
Wood expects both Victoria and NSW to cut at least one more deal to delay an impending coal closure but said governments should not continue Victoria’s practice of keeping the financial arrangements confidential. He nominated AGL’s Bayswater plant in the Hunter region, which has a scheduled closure date of no later than 2033, as a potential target for government support.
“I also wouldn’t be surprised if the government does something with Loy Yang B in Victoria,” he said.
Coal closure dates in Queensland can be directly controlled by the state government, which owns the generators in its jurisdiction.
To accelerate the build-out of vital new transmission infrastructure to link up often-remote wind and solar power regions to Australia’s major cities, Wood said governments must also urgently agree on “coordinated, pragmatic actions ... to remove roadblocks and bottlenecks to new projects proceeding”.
In addition to ensuring a smooth transition away from coal, adding more renewable energy to the grid is also a key plank of state and federal targets to reduce the output of planet-heating greenhouse gas emissions.
The Albanese government has set a legally binding target to cut emissions by 43 per cent by 2030. To do so, it aims to reach 82 per cent renewable electricity supply by the same deadline. Victoria is chasing 95 per cent renewables by 2035 and NSW is aiming for 70 per cent renewables by the same deadline.
However, Grattan argued that the seemingly counterintuitive move to prop up coal might help the clean energy switch in the long term, warning that public support for policies to cut emissions by reducing fossil fuels will wane if power prices rise and reliability falls.
Wood said the 2018 ditching of the National Energy Guarantee was a prime example of the energy chaos that contributed to the lack of preparation for coal plant closures.
The scheme was intended to coordinate the rise of renewable energy with dispatchable power from large-scale batteries, pumped hydro, or gas peaking plants, which can be deployed to rapidly fill gaps when solar and wind power aren’t available. However, the former Coalition government abandoned the policy after the party split over the role of fossil fuels.
The National Energy Guarantee followed a seismic policy shift in 2014 when the Abbott government abandoned the carbon pricing scheme imposed by the Gillard government in 2012.
Most recently, state and federal governments could not form a consensus on how to back up intermittent energy supplies from wind and solar farms, with Victoria agreeing to the use of gas-fired power in publicly funded schemes.
Wood said Australians would “not forgive our political leaders if they mess up the post-coal era”.
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