NSW’s Vale Point coal-fired power station’s future is more secure as AEMO allowed to take cash

The Vale Point coal-fired power station can continue to operate despite ESG pressure from its financier under a rule change allowing the country’s energy market operator to accept cash.

The future of one of NSW’s coal power stations has been safeguarded after Australia’s energy market rulemaker approved a change in market laws.

The change allows the Australian Energy Market Operator to accept cash and surety bonds as credit support from market participants, in addition to bank guarantees or letters of credit that are currently permitted.

Vales Point, owned by Delta Energy, in October said its current bank guarantee was due to expire at the end of 2024, and its current financier – believed to be Macquarie – would not be extending a financing facility due to environmental, social and governance policies.

Without a guarantee, Vales Point faced a possible market suspension under specific but yet unrealised market conditions which could have caused problems within the energy market. Australia’s national electricity market is so precarious that removal of Vales Point from production could have sent wholesale electricity prices soaring and that would have eventually flowed through to household bills.

AEMC chair Anna Collyer said that while the rule change had been requested by Delta, it would benefit the entire market.

“While the energy transition is progressing, the AEMC recognises there is ongoing reliance on existing generation, particularly to ensure reliability through the transition period,” Ms Collyer said.

Australian Energy Market Commission chair Anna Collyer.

The rule change had drawn broad support – even from AGL Energy which had raised initial concerns about the prospect of rushing through the law tweak.

Large retailers such as AGL and Origin Energy, however, also noted concerns about what would happen if a retailer were to go bankrupt and how cash lodged with AEMO would then be treated.

Smaller retailers, many of which may struggle to secure bank guarantees and might have to pay a premium, argued in favour of the rule change – a fact acknowledged by Ms Collyer.

“Our draft determination provides greater flexibility for market participants to meet their financial security requirements, which will help reduce costs and barriers to entry, particularly for smaller retailers,” Ms Collyer said.

“This expanded range of options also addresses growing concerns about access to traditional credit support options for some participants, while supporting reliable electricity supply and delivering benefits to consumers through enhanced retail competition.”

While small retailers will cheer the decision, the rule change will most acutely be welcomed by Delta. The Australian previously reported that the coal generator was confident that it would not be required to produce bank guarantees until a prolonged period of negative pricing. Negative wholesale pricing occurs when there is so much renewable energy generation that floods the market, coal generators are forced to effectively give away power for free as they are unable to switch off.

Negative pricing is increasingly commonplace, a trend that is heightening economic pressure on coal generators. Coal-fired power stations continue to be profitable as wholesale prices typically swing higher once the sun has set but this period of lucrative returns are under pressure from a growing number of batteries.

Batteries can be charged during the day, as solar generation pushes prices below zero, and then dispatched once the sun has set.

Originally published as NSW’s Vale Point coal-fired power station’s future is more secure as AEMO allowed to take cash