A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) and Green Energy Markets has found that several coal power plants in the National Electricity Market (NEM) will be financially unviable and at least one is likely to face closure several years sooner than planned due to coal plants’ poor flexibility and inability to adapt to a rapid influx of renewable energy.
Tracking the announcements of proposed wind and solar projects, the report’s authors, Tristan Edis and Johanna Bowyer, found previous estimates of future power supply from renewables in the NEM to be understated.
According to the report, an additional 28 gigawatts (GW) or 70,000 gigawatt-hours (GWh) of renewable energy is expected to be installed by 2050, compared to its 2018 baseline year. By 2025, it is forecast that the installed renewables capacity will be 8GW of utility-scale solar, 12GW of wind, and 22GW of rooftop solar*.
Tristan Edis from Green Energy Markets said the market is facing a tidal wave of new supply, much greater than anything government authorities or market analysts forecast or even contemplated just two years ago.
“The supply added from 2018 to 2025 equates to over a third of the entire demand in the NEM, and more than eight times the annual generation of the Liddell coal-fired power station in NSW,” he said.
Co-author Bowyer, from the IEEFA, noted that this extra supply will lead to a collapse in output from many of the existing generators.
“We predict that gas power station output will fall by 78 per cent and coal output by 28 per cent by 2025 compared to 2018 levels.”
“The extra competition from wind and solar plants will also have a deflationary impact on wholesale electricity prices, as more expensive gas and coal generators will be needed far less. While prices will be more volatile, on average they are likely to return back to the kinds of levels that prevailed in 2015. This is because the extra supply from renewables is several times greater than that lost from the closure of Hazelwood, Northern and Liddell Power Stations,” she said.
The authors note the combination of renewable supply displacing output from coal and gas plants, as well as reducing prices, will lead to a huge reduction in revenue for these generators.
Even with AGL’s Liddell coal-fired power station closing in 2023, the analysis shows individual coal plants are likely to experience wholesale spot market revenue reductions of 44 – 67 per cent between 2018 to 2025. This is expected to drive EBIT (earnings before interest and taxes) reductions for individual coal plants of up to 119 per cent.
“Three to five of the remaining 15 coal power stations in the NEM will be under financial stress by 2025 according to our analysis,” commented Bowyer.
“In addition to Liddell’s 2023 closure, at least one coal power station exit is likely to occur far sooner than authorities are planning for.”
While a sudden and unplanned exit of coal power plants is highly problematic, Edis notes a word of caution about knee-jerk reactions from governments in response.
“Rather than propping up these plants which are getting very old, we need new government policies that supports private-sector investment in dispatchable power plants that will be viable over the long term.”
According to the authors, the NSW Government’s Electricity Infrastructure Roadmap (2020) is an essential response to this issue as it provides a well-structured and competitive process for underwriting new capacity that can replace coal power plants in advance of their closure.
While other state governments have been keen to underwrite new wind and solar, they need to consider the need for dispatchable and controllable capacity as well.
“With the right policies in place allowing the market to operate and renewable energy supply taking a dominant position, the NEM’s average wholesale power prices are likely to continue to fall – a significant thumbs up for electricity consumers everywhere,” said Bowyer.
The full report can be found here.
*This forecast excludes any additional supply expected from the NSW Government’s Infrastructure Roadmap.