Gas surge after Hazelwood closure sends electricity prices skyward
Summary: The demise of Australia's dirtiest power plant has triggered the greatest use of expensive gas-fired generators in Victoria in a decade, causing a significant jump in wholesale electricity prices.....
While a recent fall in electricity use to the lowest level in five years makes it difficult to generalise yet about the impact of Hazelwood shutting, its short-term ramifications have been spelt out by market analysts UBS.
A dip in brown coal-fired electricity – and carbon dioxide emissions – but a relatively small one due to the Yallourn and Loy Yang A and B coal plants picking up most of the slack.
A 60 per cent drop in the amount of electricity that Victoria exports to NSW.
Wholesale power prices in Victoria rising more than 25 per cent from less than $80 to more than $100 per megawatt hour. This is largely due to a doubling in the amount of natural gas burned to generate electricity. The wholesale price makes up about a quarter of household electricity bills.
UBS analyst Nik Burns said it was likely prices would continue to rise. "We expect potentially up to a 40 per cent increase for consumers over three to four years," he said.
The price spike may be softened by an unprecedented surge in investment in renewable energy – more than $7.4 billion, according to the Clean Energy Council. When completed, these projects will increase competition in electricity generation, potentially reducing demand for gas plants that are usually only turned on at times of high demand.
Gas prices have surged as most of what is extracted on the east coast is exported to Asia. While the fossil fuel still provides less than 10 per cent of the electricity used in Victoria, the need for it has pushed up the price that all generators can charge.
Mr Burns said it was not clear that a Turnbull government plan to require gas exporters to make more supply available for domestic use would do much to lower prices, and it was possible policymakers would require renewable energy to be backed up by gas or battery arrays to ensure grid stability. Some analysts have found wind and solar power with batteries to be now cheaper than gas.
Environment groups have joined business leaders and the National Farmers Federation in calling for the re-introduction of a national carbon price to end investment uncertainty over what new power plants to build as ageing coal generators shut down.
Many back an emissions intensity scheme, which they say would reduce the cost of clean energy and gas. The government has rejected it.
Environment Victoria chief executive Mark Wakeham said the data also raised a question for the Victorian government – how it planned to meet its target of a 15-20 per cent cut in emissions by 2020.
"It was always going to take some time for renewable energy to substitute for Hazelwood, but what's disappointing is the degree to which the other three brown coal generators in the Latrobe Valley have increased since Hazelwood's closure," he said.
"Without coherent national climate policy, or without a state government plan to limit pollution from remaining generators, we're not getting the full climate or health benefits of Hazelwood's closure."
Victoria had previously been spared the rise in wholesale power prices felt in other states due to soaring gas prices and investor uncertainty. Prices in NSW and Queensland last summer were at twice what they were under the abolished carbon price. Nationally, wholesale prices in April were $92 per megawatt hour, 47 per cent higher than a year ago.
Hazelwood was the 10th Australian coal plant to close this decade. Its French majority owner, Engie, began to shift away from coal in the wake of the 2015 Paris climate deal, under which countries agreed to strive to limit global warming to less than 2 degrees.
Engie has not completely exited coal in Australia; it still owns Loy Yang B, which has benefitted from Hazelwood's closure. It also owns gas assets.
The extent to which investment in clean energy has risen exponentially with government support was underlined on Tuesday when the Australian Renewable Energy Agency announced it would contribute $90 million to 12 large-scale solar projects in NSW, Queensland and Western Australia. Combined, they are expected to triple Australia's grid-scale solar capacity.
This comes as demand for electricity hit a five-year low in April due to mild weather in NSW and the limited operation of the Alcoa aluminium smelter at Portland after an outage in December damaged potlines.