Origin cuts supplies from coal plant as demand falls
Origin Energy saw electricity demand fall by up to 20pc for some customers during virus shutdowns and has cut supplies from a giant coal plant.
Origin Energy saw electricity demand fall by up to 20 per cent for some customers during the COVID-19 shutdown and has increasingly cut supplies from its giant Eraring coal plant as renewables carve out cheaper power prices during daylight hours.
After dire warnings of a potential 40 per cent decline in demand under a full lockdown scenario, Australia’s largest energy retailer said demand had only fallen by about 10 per cent at its peak across the national electricity market and has recovered to a 7 per cent fall currently.
“We definitely saw some demand coming off which on average was about 10 per cent and that’s recovering somewhat this week to about 7 per cent down on average,” Origin’s energy supply and operations boss Greg Jarvis told the Annual Credit Suisse Australian Energy Conference on Wednesday.
Demand among large commercial and industrial customers fell 10-15 per cent while small and medium sized businesses declined 15-20 per cent which was partly offset by robust residential demand with people working from home over the last few months.
“We’ve got to keep a very close eye on the small and medium load,” Mr Jarvis said. “I’m very hopeful that businesses will return.”
Commercial services account for 28 per cent of national electricity market demand with consumers 24 per cent and manufacturing at 22 per cent.
Origin said gas demand also dropped 10 per cent which had started to recover in recent weeks.
Average electricity spot prices have halved from a year ago to between $40 to $45 a megawatt hour range in most states, although prices have crept up in June with the onset of winter.
Still, those cheaper sub-$40 price levels are starting to approach break-even for black coal generators in the national electricity market and Origin said it had been cutting production from the NSW Eraring facility, Australia’s largest coal plant, during daylight hours.
Output from the 2880 megawatt Eraring station can be substantially reduced when prices were low, Origin said.
“Eraring is pretty flexible so we can really wind down those units in the middle of the day to 200MW and it can go lower really,” Mr Jarvis said. ‘When we see prices in the mid-$30s per megawatt hour or lower we tend to save the coal and just stockpile it and again you need the flexibility around your coal. So we can stockpile that coal or just delay deliveries from the mine. And we buy energy for our customers from the pool at those prices.”
Eraring output will be lower in the 2020 financial year.
“But that doesn’t affect the margin because quite frankly burning coal at $30MWh or lower you don’t make much margin on that if any.”
Origin is increasingly putting into practice a new way of operating Eraring including shutting the facility down during the day and sparking it back up to meet evening peaks with cheap solar making it uneconomic at certain points of the day.
A likely tipping point for Eraring to pare output is when wholesale power prices fall below $50 a megawatt hour during the day on a consistent basis, Origin has said.
Eraring will stay in the market until 2032 but requires substantial investment to ensure it can remain a baseload supplier to the grid. Solar hollowing out prices during the day raises fresh risks but also opportunities for Origin to flex other parts of its portfolio in response, Mr Jarvis has previously said.
Power rival AGL Energy said last year it will also consider shutting down its Bayswater coal plant in NSW for part of the day as the big baseload generators adapt to slabs of cheap solar and wind entering the grid during the day.
Rolling out the so-called ‘two-shift’ operation among coal plants is likely to be assessed on a raft of different factors including the age of the power stations and the cost of their coal supplies.