AGL and Origin point to disturbing development for power grid

AGL’s plants are closing, with Liddell first to shut in April. Picture: Brendan Beckett

Neither Origin Energy nor AGL was prepared to give full-year earnings guidance at their annual results this week.

It a disturbing sign for every Australian on the east coast who depends on the grid to deliver reliable power at a reasonable price.

Despite all the talk of energy transition, the June quarter has shown the energy market is broken and we are losing the race to deliver enough new firm power to replace coal as it exits the market.

Electricity and gas prices jumped so much that the market operator, intervened first to administer pricing and – when that looked wobbly – suspended the market altogether.

The calamity of coal fired power outages – planned and unplanned – demonstrated just how critical coal fired power continues to be, not just in supplying 60 per cent of grid electricity but for the entire energy system.

Just ask Santos chief executive Kevin Gallagher. He and the other big gas players now operate under continued threat of government intervention, not, he stresses because of a gas shortfall, but because the loss of coal fired power sucked gas into the system and caused gas prices to spike. That could well happen again.

The promised capacity market for the grid that would pay generators for firm power is now compromised with Victoria’s flat refusal to include fossil fuel generation. And far too much hangs on the timing of poles and wire infrastructure to connect renewable energy zones and build new interstate connections.

Both Origin’s Frank Calabria and AGL’s Graeme Hunt know that in early September, the Australian Energy Market Operator will deliver its next Electricity Statement of Opportunities, with an updated reliability assessment of the grid. Hunt says AGL will aim to give guidance in September along with its strategic review.

The pandemic, Ukraine conflict and local floods conspired to deliver a series of unfortunate events. But does anyone think 2022 was a one-off? That there is no risk of repeat weather driven outages, supply shocks, absenteeism and failures in ageing power stations coinciding again in 2023?

It is AEMO’s job to have a view on this. The fourth quarter is normally the shoulder season for planned outages but in both 2021 and 2022 it turned out to be a critical period for the market.

Time will tell whether Origin’s Eraring coal fired power station will be allowed close in 2025. What is critical is that investment in coal fired power stations, until they do leave, is maintained.

“You can never guarantee that things won’t breakdown. As things get older the potential for that increases,” says Hunt.

“But we are confident that the work that we do and the money that we spend is focused on managing the reliability as best as we can,” he adds.

At the results, AGL’s chief operating officer Markus Brokhof went through the forced outages: the generator earth fault in Loy Yang Unit 2 which came from a design error in 2019, and a rise in boiler tube leaks across Liddell, Bayswater, and Loy Yang. An issue of maintenance? RBC Capital Markets queried that in its note on the AGL results.

Brokhof says the boiler leaks are a critical area for AGL to contain and manage into the future, especially at Bayswater which underperformed in 2022. He lists a raft of new measures including the use of digital twins to monitor and improve operating conditions.

Liddell’s full closure is April 2023, Bayswater 2033 and Loy Yang A 2045.

Despite AGL’s annus horribilis the company managed a $225m profit which chairman Peter Botten says showed underlying resilience given market conditions.