Callide C coal plant delays spark fears of winter energy crunch

Delays to the restart of coal-fired power stations in Queensland have heightened fears of another harsh winter for the fragile energy market.

Delays to the restart of coal-fired power stations are putting pressure on electricity supplies.

Further delays to the restart of the Callide C coal-fired power station in Queensland, coupled with the impending closure of AGL’s Liddell coal plant, have heightened fears of another harsh winter for the country’s vulnerable energy system.

The prospect of a repeat of last year’s unprecedented energy market intervention by the Australian Energy Market Operator is also seen a real possibility this year, particularly if further outages are reported or severe weather events limit coal supply.

CS Energy confirmed on Wednesday the restart of two major coal generators in Queensland would be delayed by up to six months, nearly two years after a major explosion forced one of the units to shut down.

It means both will be out of service for the upcoming winter.

Grattan Institute energy program director Tony Wood, who has encouraged companies to consider delaying the planned closure of coal-fired power plants in order to help avoid blackouts and energy shortfalls, said the absence of coal-fired generation put energy markets at risk in the coming months.

“We had a really big problem mid-year last year with coal-fired power station outages, where it wasn’t actually the coal-fired power stations themselves but the coal supply that was a problem because of the terrible rainfall that flooded the coal mines,” he said.

“Both of those units at the Callide power station in Queensland are both still looking to be offline even further than they previously had been, and they won’t be online for winter.

“Broadly speaking that means our safety buffer has been reduced. It doesn’t mean that we’re suddenly in dangerous territory, but you don’t need too many of those things to happen for it to be a problem.

“These coal-fired power stations are getting older, we do know that we’ve seen more unscheduled breakdowns or outages than we normally see across the board - so you wouldn’t really rule anything out. You don’t want to forecast blackouts, but they’re the risks.”

The lack of coal generation has some in the market on edge, given the entire national power grid was suspended during the 2022 winter due, in part, to a lack of coal generation following station breakdowns.

Queensland’s CS Energy confirmed on Wednesday the restart of its 466MW C3 unit at Callide would be delayed from June to September, while its replacement C4 unit, which suffered major damage from a fire in May 2021, would return to service in October instead of May.

The announcement led to an increase in electricity futures prices for this winter of $10 per megawatt hour for the Queensland market.

Businesses and consumers were already bracing for more hip pocket pain, with the Australian Energy Regulator due to reveal the latest hike to its default market offer next week, affecting close to 600,000 households in NSW, southeast Queensland and South Australia.

Origin Energy chief executive Frank Calabria says electricity prices are likely to rise by 20 per cent, with the price increase coming into effect on July 1.

Mr Wood said the increases were a flow-on from last year’s problems in the National Electricity Market.

“A lot of costs were incurred last year in keeping the system stable and reliable and paying for gas - the market operator incurred a lot of costs,” he said.

“Those costs are passed through to the energy retailers and they are expected to recover that from customers. That’s what’s going to drive the price increase on the first of July.

“You would expect that in the longer term we shouldn’t be seeing those sort of price increases anymore, but this was never going to be a cost free transition.

“When you’re going through a huge transition of a system that is 120 years old there’s always going to be changing pains and we’re seeing some of those.

“I think that clearly this year and next year there is cost of living pressures coming from electricity. We’ve already seen gas price increases of between five and 20 per cent.

In January the ACCC reduced its forecast for a gas supply shortfall on the east coast for this year, down from 56 petajoules to 30 petajoules.

A survey of commercial gas buyers found a deep level of dissatisfaction with the prospect of gas shortages, with calls for government action, possibly via an east coast gas reservation, a lifting of exploration bans and other measures.

Ai Group, whose members include manufacturers and companies operating in energy-intensive industries, has supported the federal government’s intervention, including its 12-month price cap.

Ai Group director of climate change and energy Tennant Reed said there were several levers AEMO may be forced to use in order to secure supplies this winter.

“Looking at what might be the risks this winter, there’s always the chance that something or several somethings go wrong at once, and produce a greater risk of a few days to maybe more than a few days where the market is absolutely short of supply,” he said.

“None of the new supply stuff or demand reduction stuff is going to make any difference for this winter - that is much more a story of the redirection of gas by market participants to meet demand.

“And in extremis, the export control powers or other extreme measures like the reprioritization of gas demand that AEMO has done before.

“We will need those emergency steps if several big things go wrong at once around the possible further failures of coal-fired power stations and things can go wrong in the gas supply chain too.

“So we do face some risk this winter. Maybe more than the usual winter.”

Originally published as Callide C coal plant delays spark fears of winter energy crunch