Power price pressure builds amid delays in green energy rollout

Prices will rise in Australia’s electricity grid as big coal power stations are shut down and the rollout of renewable and storage capacity slow with NSW the most exposed.

Origin Energy has agreed to keep its Eraring power station operational until 2027. Picture: Nick Cubbin

Power prices will rise in Australia’s electricity grid as big coal power stations are shut down and the rollout of renewable and storage capacity slows, UBS says, with NSW the most exposed once the Eraring plant closes.

The broker lifted its 2024 forecast for wholesale prices to $90 per megawatt hour from $80/MWh, given the materially higher levelised cost of electricity from firmed renewable energy.

The estimate indicates Labor’s election promise to reduce electricity bills by $275 from 2025 looks increasingly unlikely along with modelling which promised to cut bills by $378 from 2030.

Delays in renewable and storage capacity development alongside the closure of coal plants will mean wholesale prices peak in 2029 at $104/MWh, UBS added.

The “Goldilocks conditions experienced in 2023 of strong coal-fired generation availability, mild weather and strong renewable output do not repeat” through the decade.

“Renewable penetration has softened in 2024 thus far, with the gap in generation filled by higher coal-fired generation utilisation,” UBS said. “The pipeline of committed and anticipated renewables projects has stalled, with the lowest number of investment decisions on new generation taken in years during 2023.

“We forecast a material tightening in the market from coal capacity exiting, and insufficient replacement with renewables.”

Nearly 20 per cent of Australia’s most advanced renewable energy developments, with a combined capacity larger than the country’s biggest coal power station, have experienced delays in the past year, analysis conducted by The Australian shows.

Electricity futures prices have rallied materially over the next two years, up 35 per cent and 30 per cent for 2024-25 over the past three months, as market events and increased forward liquidity have placed upward pressure on prices.

Futures prices are averaging $106/MWh for 2024 and $111/MWh for 2025, which remain above UBS’s forecast for the next two years.

“We believe the uncertainty around the closure of Eraring previously dragged on futures liquidity, particularly post 2025,” UBS said.

“We expect a systematic step-up in wholesale prices, following the closure of Eraring, similar to the observed 50 per cent step-up in NSW wholesale electricity prices following the retiring of AGL’s Liddell coal-fired power station on 28 April 2023.”

A deal to extend the lifespan of NSW’s largest coal power station was struck in May, with Origin agreeing to keep Eraring open until August 2027.

The deal comes just days after the Australian Energy Market Operator warned NSW faced electricity shortfalls from 2025.

Analysis shows 15 of the 79 new energy projects considered by the Australian Energy Market Operator to be so advanced that development is essentially assured, have experienced delays.

The combined capacity of the 15 projects is nearly 3.5GW, substantially larger than Origin’s Eraring coal power station.

While many of the delays were just a couple of months, some were more than a year. The longest delay noted was ACEnergy’s battery in Victoria which is now set to be operational in January 2026, having been earmarked last year for completion in June 2024.

Industry sources said delays were the result of inflationary pressures, which have substantially increased costs of projects, planning holdups, transmission build issues and policy decisions.

Australia is struggling to build the high-voltage transmission lines needed to connect new developments to the grid, while recent policy from the federal government is also weighing on the plans of developers.

Originally published as Power price pressure builds amid delays in green energy rollout