New modelling shows power price hikes linked to coal closures, and what should be done to minimise the pain

The closure of Victoria’s coal-fired Yallourn power station in 2028 could lead to power prices doubling, and the state left vulnerable “to fluctuations due to variations in weather”.

Power prices are set to double when Victoria’s dirtiest coal-fired power station closes later this decade, amid warnings hikes will be greater if new renewables and storage are delayed.

Modelling supplied to advisory body Infrastructure Victoria for its updated 30-year strategy show that Yallourn’s closure – expected in 2028 – will likely see wholesale electricity prices rise from about $50 a megawatt hour to more than $110/MWh.

Wholesale prices make up about a third of a typical Victorian bill.

The last time prices spiked to this level was following the outbreak of war in Ukraine, which led to bills soaring by about $350 in one year.

Two pieces of modelling, by Jacobs and by Aurora, were supplied to Infrastructure Victoria to help it shape recommendations to the Allan Government of how to navigate upcoming energy supply challenges while meeting emissions reduction targets.

Victoria’s Yallourn coal-fired power station. Picture: Jason Edwards

Recommendations include putting a greater focus on batteries and virtual power plants to reduce strain on the grid and provide back up power, speeding up energy infrastructure delivery and energy efficiency upgrades, and better plan long duration storage.

Infrastructure Victoria chief executive Dr Jonathan Spear said the recommendations aim to “help the government navigate the risks of the energy transition, meet emissions reduction targets and keep the energy system affordable, reliable and fair”.

Aurora’s modelling forecasts price impacts of the transition away from coal, which begins with Yallourn, and “is expected to significantly increase prices due to a reduced supply of reliable electricity, forcing a greater reliance on more expensive generation sources”.

It warns that this will also leave the state more “susceptible to fluctuations due to variations in weather”.

By the 2030s, when Loy Yang units are expected to close, there will be “significant demand-supply imbalance in Victoria, which will likely lead to even higher short-term wholesale power prices unless renewable and storage alternatives are deployed rapidly and at scale”.

Jacobs’ report also looks at other looming risks, including that coal-fired power plants run longer than expected.

Power prices are set to surge. Picture: Andrew Henshaw

This would bring wholesale price relief in the short term but throw emissions reduction targets into a spin, and experts warn it doesn’t include likely increased maintenance costs of ageing plants.

Director of climate change and energy at the Australian Industry Group, Tennant Reed, said the Infrastructure Victoria work and modelling “underline the importance of getting things built and the risks to price and reliability and emissions if there are delays”.

“Victorians will all benefit from getting new energy infrastructure built on time, and we’ll all suffer if we can’t,” he said.

Opposition energy spokesman David Davis said looming price hikes were a “catastrophe” for Victorians and he blamed Labor for failing to adequately plan ahead.

“This massive increase will smash businesses and clobber households,” he said.

A spokesperson for the Allan Government said it was acting on Infrastructure Victoria’s recommendations that “confirm that our plans are focused on driving down Victorians’ energy bills and will deliver the lowest power prices of any scenario”.