Yallourn shutdown heralds fresh energy battle

A new battle between the Morrison government and the power industry looms after EnergyAustralia’s decision to shutter Victoria’s Yallourn coal power plant four years early.

Peter Broeren, 55, worked in the industry since 1983. Victoria's Yallourn coal-fired power station will shut down four years earlier than expected in 2028. Picture: Jason Edwards

A fresh battle looms between the Morrison government and the power industry after EnergyAustralia’s decision to shutter Victoria’s Yallourn coal power plant four years early, sparking a demand for generators to build new supply to avoid a spike in power prices.

The Yallourn station which started operating in 1974 supplies 22 per cent of Victoria’s electricity and 8 per cent of the national electricity 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. A $10m support package will be offered to the plant’s 500 workers and while a giant battery will be built by 2026, it will provide less than a quarter of Yallourn’s 1480 megawatt capacity.

“While the announcement may have surprised some of our people, its context did not,” EnergyAustralia managing director Catherine Tanna said, referring to solar undercutting the profitability of coal.

Despite the seven-year notice period, Energy Minister Angus Taylor was quick to raise fears over both price spikes and reliability concerns saying the government will “hold industry to account” on delivering enough backed up power generation to fill any shortfall.

The federal government has kept the door open to building a new energy generator if the private sector does not fill the void, after making moves in NSW to step in with a giant gas plant due to the closure of AGL Energy’s Liddell plant in the 2022-23 summer.

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

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.

Energy Security Board chair Kerry Schott has repeatedly warned coal plants could struggle to receive any value for their generation when undercut by renewables that could produce at close to zero cost.

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.”

Origin Energy boss Frank Calabria said an accelerated move to renewables sparked EnergyAustralia‘s decision to close Yallourn early as it weighs a range of scenarios for when to close its own Eraring coal station in NSW, scheduled to remain open until 2032.

The energy transition “is reaching a tipping point,” Mr Calabria told a business conference on Wednesday.

“Our future system is going to be powered by wind and solar, it‘s going to be firmed up by pumped hydro and batteries and probably the need for gas fired generation for those extended outages that may occur.”

“We’re getting to the point where it’s accelerated over the last year and so today’s announcement I think is a sign of the times that this energy transition is really accelerating right now.”

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 weighs how to fill the gap between the battery and the lost coal capacity.

It has committed to run Yallourn until 2028 under a pact with the Victorian government. The Australian understands the government has provided financial backing to ensure Yallourn stays in the system with EnergyAustralia’s parent CLP noting mechanisms were in place “to facilitate Yallourn to operate economically through to 30 June 2028 and to operate at certain required operational and performance” levels.

“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,” Ms Tanna said.

Origin’s Eraring plant, the biggest in Australia, is also due to close by 2032 and Mr Calabria said it will consider a range of scenarios for the facility as the market keeps changing.

“We’ve said we would close by 2032 but I did say previously that you’ve got a market now really shifting rapidly and like all generators in the market we’re running that plant differently today than we were six months ago,” Mr Calabria said.

“Therefore, there would be a range of scenarios we plan for. I can’t predict a particular scenario but you’d have to say the acceleration over recent times does not surprise me with EnergyAustralia’s announcement.”

Originally published as Yallourn shutdown heralds fresh energy battle