Exit of AGL Energy’s Liddell coal power station inflated electricity prices: AER
Electricity prices rose after AGL shut down NSW’s Liddell coal power station in April, exacerbating fears over a jump in household bills as the fossil fuel exits the power grid.
Power prices rose after AGL Energy shut down NSW’s Liddell coal power station in April, exacerbating fears over a jump in household bills as the fossil fuel exits the power grid.
The Australian Energy Regulator said the cost of producing electricity during the three months to June 30 rose across nearly all of the national electricity market.
But NSW suffered the biggest underpinned increases in the cost of wholesale electricity during the second quarter, which the watchdog attributed to the closure of Liddell.
Prices in NSW topped $148 per megawatt hour, just ahead of Queensland and South Australia, followed by Victoria, while Tasmania averaged only $65 per megawatt hour.
NSW Energy Minister Penny Sharpe in April had pledged the closure of the plant would not have any immediate impact on prices, despite it meeting up to 10 per cent of power demand in the state last year.
“While the exit of the Liddell Power Station in April contributed to higher prices in the quarter, it was partly offset by around 1100MW of new capacity in the form of solar, wind and batteries for the same period,” the AER said. “Had Liddell’s capacity still been available, prices would have been lower.”
The revelation will intensify pressure on ambitious renewable targets set out by states including NSW and the federal Labor government, while fuelling the contentious debate about the pace of Australia’s energy transition.
Higher wholesale prices do not immediately flow through to household bills, but are a key component in determining how much they will rise next year.
Households are already grappling with a 23 per cent jump in their electricity bills under the default market offer, which kicked in on July 1. AGL chief executive Damien Nicks last month said the company had given the market sufficient warning of its closure.
“We gave the market seven years notice on Liddell. So Liddell coming out of the market should not have been a surprise,” Mr Nicks told investors. “There were other factors that did come through during that period of time. What you’re seeing in there though is the supply demand pressure that we’re seeing in the market. What we need to see happen is more renewables, more firming coming to the market.”
Australia is moving aggressively to wean its energy network from its dependency on coal. Coal provides more than 60 per cent of the nation’s electricity but the federal government has set a target of having renewable energy generate more than 80 per cent of the country’s power by 2030. The target is a key component of the nation’s plan to be net zero by 2050, but opponents have seized on it as a growing number of people struggle to pay their bills.
Australia has endured two consecutive years of price rises of more than 20 per cent after Russia’s invasion of Ukraine sent prices of coal and gas to record highs.
The increased cost of producing electricity is flowing through to households and businesses, which is taking an increasing toll.
Last month, the AER said the number of households on hardship payment plans to repay electricity bills had surged by 19 per cent during the 2023 first quarter.
The federal government is under mounting pressure to provide more relief to struggling households. In its May budget, Labor offered 5 million households price relief to their electricity and gas bills, and has urged retailers to be mindful of the cost-of-living crisis on their customers.
Officials worry that soaring power prices could see public support for the energy transition wane, but renewable energy proponents insist the country must accelerate the development of renewable generation.
The AER report offers support for such an argument, with wind generating a record amount of electricity in the second quarter.
An increased amount of rooftop solar also resulted in electricity demand during the three months falling below that reported a year earlier.
However, the trend illustrates why Liddell was shuttered. Coal power stations are not flexible and run round the clock, but when there is an abundance of sunshine and wind, wholesale prices often fall into negative territory, meaning the operator of the fossil fuel power station is losing money.
The increase in renewable energy generation will intensify further economic pressure on coal power stations.
With coal power stations under economic pressure, Australia is also struggling to build enough renewable energy and storage facilities to replace them – hinting at further increases to electricity prices on households.
But Australia is not likely to see the same scale increases of recent years, with AER board member Justin Oliver highlighting a significant fall on where wholesale prices were a year earlier.
“The second quarter of 2022 was an extremely challenging time for the sector. We’re pleased the factors that drove the high prices at that time weren’t present to nearly the same extent this year,” he said.
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