Treasurer says energy security critical as AGL seeks ‘firm-capacity rights’

AGL has called for governments to link renewable power with coal or gas plants, to ensure power security.

Speaking in Melbourne on Friday, the Treasurer said energy security had to be the government’s top priority.

AGL Energy, the nation’s biggest coal-fired power generator, has called on federal and state governments to link new renewable power to coal or gas plants through “firm-capacity rights” to ensure power security in the wake of the sudden Hazelwood closure.

The call comes as Scott Morrison says energy security needs to be the government’s top priority and that power price increases in South Australia are threatening the viability of businesses there.

AGL, which owns stakes in Victorian brown coal, NSW black coal, gas and renewable power stations, on Friday called for clear rules on closure that give communities time to plan and invest in alternative plant if needed.

“We urge the Victorian government, and all Australian governments, to consider how their energy policies can incentivise ­orderly closure and investment in low-emissions alternatives to coal,” an AGL spokeswoman said.

She said this included through “complementary capacity requirements through a firm-capacity right or similar mechanism that could incentivise development of new plant and assist Australia’s transition to a lower carbon future while mitigating the risks to the community”.

Firm-capacity rights would mean new renewable power stations would contract with a flexible coal or gas-fired plant, meaning that power could be guaranteed when the weather was not conducive to wind or solar generation.

Speaking in Melbourne on Friday, the Treasurer said energy security had to be the government’s top priority in the wake of the ­Hazelwood closure announcement and South Australian blackouts.

“If you go down to South Australia, the biggest impact on their corporate bills for small businesses and large businesses alike — it doesn’t matter whether you’re ­Arrium or Haigh’s Chocolates or anyone else — is your power bill,” he said.

“The power price increases we’re seeing in that state are threatening businesses’ viability on a daily basis.”

It was about “engineering, not ideology”, Mr Morrison said. “We’re very much focused on that task and the economic engineering that is required to get us into a more stable, more secure long-term energy market for Australia.”

For AGL and competitor Origin Energy, the Hazelwood closure offers earnings boosts.

“The closure of Hazelwood is very constructive for electricity prices, AGL’s biggest earnings driver, and more than offsets risks from a Portland (aluminium smelter) closure and the Loy Yang B (brown coal power station) EBA negotiation,” Citi analyst Michael Dargue said.

He said the Hazelwood closure could lift Origin’s earnings by 5 per cent in the longer term because of a 50 to 60 per cent spare capacity level at its Eraring power station in NSW.

On Friday, AGL shares rose 37c, or 2 per cent, to a three-month high of $19.76, up 18 per cent in the past two months as the closure of Hazelwood became more certain.