Hazelwood shutdown pumped AGL Energy profit
The Hazelwood shutdown pumped the gross profit of AGL Energy’s wholesale business by 60 per cent, a new report says.
AGL Energy grabbed an extra $832 million or 60 per cent jump in gross profits from its wholesale electricity business after the closure of the Hazelwood brown coal-fired power plant in Victoria in 2017, according to analysis by the Victoria Energy Policy Centre.
The retirement of Engie’s Hazelwood facility in March 2017 with just four months’ notice caused turmoil in the national electricity market. About a quarter of supply was shuttered, which large power retailers then capitalised on through their dominant market positions, the report found.
Coal generators earned an extra $3.47 billion from the spot market in the year after Hazelwood closed, with the bulk of costs subsequently passed through to consumers.
“Prices in the wholesale electricity market since the closure of Hazelwood reflect the exercise of market power in those periods in which coal-fired generators set prices in each region of the market,” Victoria Energy Policy Centre authors Bruce Mountain and Steven Percy said. “This has had a large impact on consumers and producers and is likely also to have a large impact on economic efficiency and the environment.”
The Australian Energy Regulator last year found the closure of Hazelwood caused record wholesale power prices and flipped Victoria from a power exporter to an importer, but it also found no evidence of opportunistic or anti-competitive behaviour from remaining generators in the market.
AGL referenced that finding and noted the market is policed by both the AER and Australian Competition and Consumer Commission.
Both bodies have conducted “recent lengthy reviews, which AGL has supported by providing thousands of documents,” AGL said in a statement on Monday. “Specifically, in 2017, the AER conducted a market review into wholesale prices and requested information on the issues raised in this report. AGL fully complied with this request. Neither regulator has accused AGL of misusing market power, or behaving in a way that’s within the rules but harmful for the market.”
Still, concerns about market concentration and the operation of the market remain significant issues, the Victoria Energy report says. The big three “gentailers” — AGL, EnergyAustralia and Origin Energy — hold large retail market shares in many states and control more than 60 per cent of capacity in NSW, Victoria and South Australia, raising concern over their influence on both supply and pricing.
“The conclusions raise obvious concerns about supply-side market concentration and also about the design, operation and oversight of the wholesale market. The importance of these impacts, not least in the context of further coal generation closure in future merits serious consideration and policy response.”
Energy Minister Angus Taylor said the findings underlined the need to introduce the federal government’s controversial “big stick” legislation, which includes divestiture powers as a last ditch means of forcing down spiralling electricity prices and diluting the power of the big integrated generator retailers.
“The big energy companies did gouge prices, they did hike their prices by as much as 50 per cent or more as a result of the closure of Hazelwood,” Mr Taylor said. “This is vindication of something I’ve been saying for a long time. It’s also vindication of the government’s approach to bringing in the big stick legislation and giving power to the government to deal with this kind of abuse of market power.”
The AER report found Victorian wholesale prices were the highest on record and were up 85 per cent in 2017. New South Wales prices rose 63 per cent, Queensland was up 53 per cent and South Australia up 32 per cent.
The Australian Energy Council, a lobby group representing major electricity and gas businesses, rejected claims over the misuse of market power following the closure of Hazelwood and said it was always going to lead to a hike in wholesale power prices.
“The regulator did point to higher coal and gas costs, as well as serious issues with coal supplies as key factors in higher wholesale prices rather than ‘opportunistic’ behaviour,” Australian Energy Council chief executive Sarah McNamara said.
Declining coal stockpiles had led NSW generators to manage their dispatch to avoid the risk of not having enough during peak demand months, the AEC added.
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