Supply fears as Energy Australia moves to close Victoria’s Yallourn coal-fired power plant by 2028

Energy Minister Angus Taylor says the early closure of Victoria’s Yallourn power station raises reliability and price concerns.

The Yallourn Power Station in the Latrobe Valley, Victoria.

EnergyAustralia has confirmed the early closure by four years of its Yallourn coal power plant in Victoria’s LaTrobe Valley by mid-2028, sparking the Morrison government to raise fears over a hit to prices and reliability in the national power grid.

The Yallourn station supplies 22 per cent of Victoria’s electricity and 8 per cent of the national market, but has been under pressure for several years as Australia’s national power grid accelerates a transition to renewable energy.

It will close in mid-2028, over four years earlier than its planned retirement date of 2032.

“While the announcement may have surprised some of our people, its context did not,” EnergyAustralia managing director Catherine Tanna told media on Wednesday.

Energy Minister Angus Taylor said the early closure of Victoria’s Yallourn coal power station raises reliability and price concerns while placing added pressure on the market to deliver new supplies.

Energy Minister Angus Taylor. Picture: NCA NewsWire/Gary Ramage

“While the commonwealth government understands this is a commercial decision, the exit of 1480 MW of reliable energy generation brings with it reliability and affordability concerns,” Mr Taylor said in a statement.

“As an essential service, the commonwealth government expects the market to step up to deliver enough dispatchable generation to keep the lights on and prices low once Yallourn closes.”

The Morrison government has previously raised fears the closure in 2022 of AGL Energy‘s Liddell coal plant did not repeat the market chaos that ensued after the closure at short notice of Engie’s Hazelwood plant in 2017.

It will model the impact of Yallourn‘s early closure amid concerns over high bills.

“While coal exits impact reliability and system security, the major impact for consumers will be the significant increase in prices if not adequately replaced with dispatchable capacity. We have already seen this happen with the closures of Northern in South Australia and most recently Hazelwood in Victoria, where wholesale prices skyrocketed by 85 per cent,” Mr Taylor said.

“The commonwealth government will model the impact of the closure to hold industry to account on the dispatchable capacity needed to ensure affordable, reliable power for consumers. This will deliver needed transparency around the impact of Yallourn’s closure.”

A multimillion dollar support package will be offered to the plant’s 500 workers and the company will build a utility scale battery facility by the end of 2026.

The new 350 megawatt battery will ease some of the stress on the power grid, although will only be a fraction of the 1480MW capacity of the coal plant.

EnergyAustralia said challenges for coal from the fast-paced move to renewables had taken place faster than anticipated.

A flood of solar often pushes spot prices to low or even negative levels during the day, creating a headache for coal plants which traditionally pump out power around the clock rather than switching on and off to meet market demand.

Average electricity spot prices have halved from a year ago to between $40 to $45 MwH range in most states as a flood of cheap renewables lowered daytime prices along with cheaper gas and coal and softer demand amid COVID-19.

“I think it’s fair to say it’s happened faster than most people forecast,” Ms Tanna said.

“It’s no secret that the future of all coal fired power stations has been questioned a lot and what this announcement does is give clarity to the workforce at Yallourn around what the plan is and also ensures the storage capacity comes in well before Yallourn retires. It gives everybody an opportunity to plan for whatever else might be needed for the market.”

Electricity futures point to subdued conditions extending through this year and into 2022 with prices in the early $50MwH range, signalling a tough period ahead for the nation‘s big utilities including EnergyAustralia.

Still, some analysts question whether the big fall in wholesale prices is sustainable, with predictions baseload coal plants may need to further cut production to survive, tightening the market and leading to prices rising again.

EnergyAustralia said it would consider adding gas-fired generation in Victoria as it considers how to fill the gap between the battery and the lost coal capacity.

The closure of Hazelwood in 2017, Victoria’s last coal plant to close, caused chaos in the national electricity market after owners Engie shut down the facility with just four months notice.

EnergyAustralia said it had committed to run Yallourn until 2028 under a pact with the Victorian government amid questions over whether the accelerating move to renewables and low wholesale power prices could even require the utility to bring forward a closure date again.

“Our belief is the system needs something like Yallourn out to 2028. There is as part of the agreement with the Victorian state government a safety net to ensure that’s what happens.”

Modelling by the Australian Energy Market Operator says if Victoria does meet a 50 per cent renewable target by 2030, at least one unit of the Yallourn station faces challenging economics due to additional renewable generation.

While coal still provides about 70 per cent of Australia’s power generation mix, there’s concern that plants may be forced out of the grid earlier than expected.

Yallourn has been nominated as one plant at risk by AEMO which cited lower demand, a higher renewables component in the generation mix, cuts to wind, solar and battery costs and higher maintenance costs for the nation’s ageing coal fleet.

Originally published as Supply fears as Energy Australia moves to close Victoria’s Yallourn coal-fired power plant by 2028