Alinta calls for national coal plan amid $20bn economic hit from soaring prices
Alinta, owner of Victoria’s Loy Yang B coal power station, says a capacity payment is needed to ensure the fossil fuel stays in the power grid and consumers avoid a rocky transition.
Power giant Alinta has called for federal and state governments to devise a plan to keep coal in the power grid as it warned of a $20bn economic hit from soaring wholesale electricity prices.
Alinta, owner of the Loy Yang B coal plant in Victoria’s Latrobe Valley, is among operators under short-term pressure to keep the fossil fuel supply source in the energy mix with a string of big units suffering breakdowns amid a broader crunch in the national electricity market.
Chief executive Jeff Dimery said a national plan was needed to ensure the market avoided a messy transition to renewables, echoing a call by rival EnergyAustralia.
A meeting of energy ministers on Wednesday is considering guaranteeing investment in baseload gas, pumped hydro, batteries and coal generation by locking in a scheme to pay generators for their capacity.
“I can tell you that the national electricity market needs Loy Yang B and it needs Loy Yang A and a number of other assets,” Mr Dimery said.
“And if you just leave things to market forces, and if you provide incentives and subsidise solar and wind coming into the market and...you do nothing with coal, you leave it to fend for itself.”
“It gets hurt economically, you then have activist shareholders and a large part of the community and you only have to look at the federal election, who are impatient for change and say we want these things out, get them out. So companies are being punished reputationally and commercially. So is it any surprise, they stop investing in the asset ahead of time, and then the asset fails?”
Alinta, Australia’s fourth largest electricity retailer and owned by Hong Kong’s Chow Tai Fook, said a national plan would help ease some of the market strife.
“If you actually had a plan, and you say we do want to get coal but we will do it in an orderly fashion. We’ll keep the coal we need for as long as we need it and not a minute more. And we’ll make it economically viable and we’ll recognise the service that it provides. And the day we don’t need it, we don’t need it and we’ll stop making it economically viable.”
The Alinta chief said a surge in wholesale prices could have an enormous hit to Australia’s economy of up to $20bn, estimating every $5 per megawatt hour average increase in wholesale prices adds roughly $1bn of additional cost of electricity into the market.
A move from $70MWh to $90MWh on average would cost $4bn while spot prices trading at double those levels would have an even bigger effect.
“$100 extra a year in the average price per MWh of electricity is a $20 billion direct hit to the economy via elevated electricity prices. And that’s without getting into indirect impacts,” Mr Dimery said in a speech to the Australian Energy Week conference.
“And sure what’s occurring at the moment is geopolitical, and to do with supply issues and international prices for coal and gas. But even when these weren’t occurring, the consequences of getting the transition wrong have been clear to me.”
The warning presents a fresh challenge for the Albanese government as it battles an unruly market since taking office including soaring wholesale electricity prices, a squeeze on gas and calls for immediate policy action to ease a hit to big manufacturers and household bills.
Big commercial customers will increasingly wilt under the strain of high wholesale prices, according to Alinta, with shutdowns of production at the big Tomago and Portland aluminium smelters in NSW and Victoria last week a new risk. Portland buys electricity from a consortium including Alinta, AGL Energy and Origin Energy.
“There are provisions in their contracts to handle those events - and they get a discount day in day out because they provide that flexibility. So it can be and it has been called upon,” Mr Dimery said.
“But I’m not sure that when they agreed to those terms, however, that they anticipated the market environment that we find ourselves in. And that those shutdowns could be way, way, way more frequent and far, far, far longer. That becomes problematic.”
The Australian revealed last week a major coal-fired unit at AGL’s Liddell power station had failed, compounding the crisis in the national electricity market.
AGL said the faulty unit, representing a third of the plant’s capacity, will be out of action until the second half of July after being taken out of service in mid-May.
“We’ve completed an investigation into the issue, and we’ve arranged for an on-site replacement transformer. The unit is expected to return to service in the second half of July,” an AGL spokesman said.
“We’re working through some measures that we may be able to take in the meantime to mitigate the impact of the outage.”
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