COVID demand slump hikes pressure on coal: Origin’s Frank Calabria says

COVID-19 is speeding the switch to renewables and more pressure on coal, Origin Energy’s CEO says.

Antony Comic and Tony Phillips look over the switch yard at the Eraring power station at Lake Macquarie. Picture: Liam Driver

Origin Energy predicts an acceleration in the switch from coal to renewables with weak electricity demand from COVID-19 challenging the role of the fossil fuel in Australia’s power mix.

Australia’s coal power stations are increasingly becoming uneconomic and operating at razor thin margins amid big falls in wholesale power prices as more renewables enter the electricity grid, the nation’s energy tsar Kerry Schott has said.

Origin – which operates the nation’s largest coal plant Eraring in NSW – said the pandemic had laid bare the solar ‘duck curve’ phenomenon where renewables beat coal on price during the day.

“I think Covid is accelerating prior trends even more and accelerating the transition in a number of respects,” Origin chief executive Frank Calabria told the Stanford Global Energy Dialogues forum on Wednesday.

“With the weakening in demand, I think it’s accentuating the duck curve in the middle of the day and accelerating the challenge for coal to operate.”

Wholesale power prices have fallen steeply so far this year and weaker demand has changed the way generators bid supply into the grid. Origin saw electricity demand fall by up to 20 per cent for some customers during the COVID-19 shutdown, which has since eased to a 5 per cent drop in demand in August.

“The price formation is changing and as a result of that

I believe it’s going to bring those trends on faster,” Mr Calabria said.

Black coal output fell by a whopping 1148 megawatts in the June quarter from a year earlier with Eraring recording its latest second quarter generation since 2013 as it was undercut by solar, wind and brown coal-fired supplies, data from the Australian Energy Market Operator shows.

That meant Eraring was operating close to minimum generation levels of just 180MW, less than 10 per cent of capacity, more frequently due to low spot prices.

Average electricity spot prices have halved from a year ago to between $40 to $45 a megawatt hour range in most states and at sub-$40 price levels are starting to approach break-even for black coal generators.

Coal accounts for about 70 per cent of electricity in the power grid but AEMO forecasts 63 per cent or 15 gigawatts of the country’s coal fired generation will retire by 2040.

Eraring is due to run until 2032 although some of the country’s coal power plants could face early retirement under a 20-year plan to reshape the electricity grid as the market operator bets on a tripling in rooftop solar and major transmission investment.

Cutting emissions to meet climate change targets while ensuring competitive power prices remains a priority for the grid, according to the Origin chief.

Origin Energy CEO Frank Calabria. Picture: Adam Yip

“That balance of how do we manage both affordability while we remain on this [emissions] path and some people might say ‘can you go faster than that’. One of the key things for us is the coal plant timing of coming out is really a delicate balance between the affordability issue and we’ve seen coal plant come out early and it’s an ongoing dialogue with governments about how do we manage that coming out and that will be by far and away the biggest thing we can do to reduce our Scope 1 emissions,” Mr Calabria said.

Australia will require some 19 gigawatts of dispatchable resources such as batteries, pumped hydro and fast-start gas plants over the next two decades to back up intermittent renewables, equivalent to adding one-third to the current capacity of the national electricity market.

“That’s the key challenge that must be addressed to support the intermittent nature of renewables as it continues to get built and I think that’s quite a large investment challenge alongside renewables that needs to be supported.”

Australia’s biggest electricity retailer said it moved 4000 of its 5000 staff to work remotely within “a matter of days” as pandemic lockdowns were implemented in March. Long-term working practices will inevitably change including more remote staff and less corporate travel.

“We’ll be in a hybrid form of working going forward where flexibility will be both a combination of people working remotely and working from the office,” Mr Calabria said. “I believe there will be less travel internally for work and people have welcomed a number of those changes, so I think we’ll be preserving those going forward.”