Victoria’s bid to revive state-controlled power ‘threatens’ electricity operators

Australia’s big electricity players face a new state-owned entrant in the market competing for generation deals and retail customers

The Loy Yang power station in Victoria’s La Trobe Valley. Picture: Aaron Francis

Australia’s big energy operators face a new threat from Victoria’s plan to revive the State Electricity Commission as the government flags plans to challenge incumbents in generation and retail.

A move by the Victorian government to bring back state-owned control of electricity was negative for both AGL Energy and Origin Energy, Morgan Stanley analysts said on Friday.

“Ahead of details on how the SECV would interact with private markets, we view the uncertainty as a net negative for AGL and Origin,” Morgan Stanley analyst Rob Koh wrote to clients.

The broker calculates that, based on Victorian demand of 50 terawatt hours a year, 4.5 gigawatts of State Electricity Commission of Victoria renewables would leave space for 3-7GW of additional renewables, plus firming. Morgan Stanley was currently tracking 22GW of proposals with just 1GW in construction.

The move by the Victorian government had effectively sidelined the concept of a national electricity market, according to University of Melbourne energy expert Dylan McConnell.

“There are certainly plenty of risks – including moral hazards, conflicts of interest, perverse incentives – and benefits such as ­potentially lower costs, better co-ordination and transition planning and arrangements. As is always the case, details will matter,” Mr McConnell said.

Victorian Premier Daniel Andrews. Picture: David Crosling

“Whatever the case, the ­‘national’ part of the National Electricity Market is looking pretty shaky – particularly after the Queensland plan last month.”

Queensland will all but phase out coal-fired power by 2035, in a dramatic reshaping of its energy mix to hit an ambitious renewables target of 80 per cent by 2035.

The move by the Andrews government immediately sparked a protest by Alinta, which may be forced to close its Loy Yang B coal plant 12 years early. Alinta, the ­nation’s fourth-largest electricity retailer, said its staff were shocked after the government announced a huge jump in its renewable energy target to 95 per cent by 2035, forcing Loy Yang B to close up to 12 years earlier than its nameplate ­retirement date of 2047.

However, Daniel Andrews said Loy Yang B was set to close early in any case. The Victorian Premier said his government “had to ­assume” that Alinta would follow AGL in shutting down Loy Yang B by the middle of the 2030s.

He argued that the companies were choosing to leave, rather than being “pushed out”.

AGL, owner of Loy Yang A, was recently in a similar predicament to Alinta, but ­decided to fast-track the closure of its coal plant by a decade to 2035 after sustained pressure from its largest shareholder, Mike Cannon-Brookes.

“Let’s be very clear. AGL, they run the biggest coal-fired power plant in the state, they have told us they are leaving. This is not theoretical, and this is not about being pushed out.

Alinta chief executive Jeff Dimery. Picture: Arsineh Houspian

They’ve decided to go,” Mr Andrews said. “(Loy Yang) B, they’re on the record – like I see commentary from (Alinta) management today about this, that and the other and uncertainty – they’re on the record saying in black and white that they don’t expect to be here much past the middle of the next decade.”

The Australian Energy Market Operator has previously laid out a scenario in which all Victoria’s coal plants would close by 2032.

Mr Andrews said the trend for coal to close early was already occurring in the market.

“That’s not me saying that. That’s them saying that,” he said.

“They haven’t announced that formally, but we have to assume that the biggest coal-fired power plant’s going, and the second-biggest one is going to go too.”

Alinta has also called for regular reviews to start in 2029 assessing whether coal should be included in a national mechanism to avoid future power shortages, offering an olive branch to governments wary of promoting a fix seen as prolonging the life of the fossil fuel in power stations.

Alinta chief executive Jeff ­Dimery has said the government may have to step in as a lender of last resort to ensure coal remains in the power system. The premature exit of Loy Yang B – which provides 20 per cent of Victoria’s electricity and is set to run until 2047 – could cause market ructions and price spikes if not managed carefully.