Shelving of gas power plant puts more projects in doubt

THE shelving of EnergyAustralia's gas-fired power plant in Victoria raises fresh doubts about the incentives for power companies to transition from high-polluting coal power to lower emitting technologies, with one expert saying more projects could be cancelled.

By InvestSMART · 28 Dec 2012

By InvestSMART ·
28 Dec 2012

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The proposed plant, which would have existed on the Yallourn power station in the Latrobe Valley, was one of a number of gas-fired projects put on the drawing board several years ago as a way of power companies reducing emissions, and therefore costs, under the carbon price.

But the downturn in electricity demand following retail price rises - along with manufacturing sector demand down due to the strong dollar - has put pressure on power generators to abandon projects.

Bruce Mountain, the director of Carbon Market Economics, said more energy companies would be forced to consider moving away from low-emissions investments because of these changes. "Many market pundits had three years ago indicated there would be more rapid transfer to low emission technologies like gas-fired power generation," he said.

"But with lower demand and higher gas prices, that shift is being pushed back in time."

Mr Mountain said instead of investing in new gas projects, power companies were more likely to close parts of their coal capacity to save costs.

"Existing generators are having to fight very hard to compete in the market," he said. "The partial closures of brown coal plants makes more sense, because although they lose contribution to their profits, they are able to drive prices higher."

The decision by EnergyAustralia to abandon the project comes after AGL halted all work on its proposed power station south of Sydney in October, with the company also blaming weak electricity demand.

EnergyAustralia's group executive manager, energy markets, Mark Collette, said continuing with the project was no longer viable. "When we started the project we had the view that demand was continuing to rise and gas prices were going to stay at historic levels," he said.

"But over time that has changed, particularly this year where we have seen a significant drop in electricity demand."

Mr Mountain said GDF SUEZ Australian Energy's brown coal-fired Hazelwood power plant, also in the Latrobe Valley, could be next to consider its options. "One wonders how much longer the owners would like to produce at full capacity," he said.

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Frequently Asked Questions about this Article…

What happened to EnergyAustralia’s proposed gas-fired power plant in Victoria?

EnergyAustralia has shelved its proposed gas-fired power plant that was planned for the Yallourn site in the Latrobe Valley. The company’s group executive manager for energy markets, Mark Collette, said the project is no longer viable after a significant drop in electricity demand and changes to the assumptions about future gas prices.

Why does the shelving of the gas plant raise doubts about incentives to move from coal to lower-emission power?

The shelving highlights doubts about whether current market conditions still encourage power companies to replace high‑polluting coal with lower‑emitting technologies. The article notes experts say weak demand and shifting gas prices could force companies to cancel low‑emission projects they had planned under earlier carbon‑price assumptions.

How has the drop in electricity demand affected new gas-fired power projects?

A downturn in electricity demand—driven by retail price rises and weaker manufacturing demand because of a strong dollar—has put pressure on generators. That weaker demand has made planned gas projects less economically viable, prompting companies to abandon or pause those investments.

What did Bruce Mountain of Carbon Market Economics say about future investment in low-emission generation?

Bruce Mountain said many companies that expected a rapid switch to low‑emission technologies like gas‑fired generation are now delaying that shift. With lower demand and higher gas prices, firms are more likely to reconsider low‑emission investments and instead may opt to close parts of coal capacity to save costs.

Has any other major energy company recently halted a gas power project?

Yes. The article reports that AGL halted all work on its proposed power station south of Sydney in October, also citing weak electricity demand as a reason for pausing the project.

Could coal plants such as Hazelwood be affected by these market changes?

The article says GDF SUEZ Australian Energy’s brown coal‑fired Hazelwood plant in the Latrobe Valley could be next to consider its options. Experts wonder how much longer owners will want to produce at full capacity given the changing market dynamics.

What impact might partial closures of brown coal plants have on electricity prices and company profits?

According to the article, partial closures can reduce a generator’s profit contribution but may allow remaining operators to push prices higher. Existing generators are said to be fighting hard to compete in the market, and partial closures can be a strategic response to help support prices.

What should everyday investors watch for after EnergyAustralia and others shelved gas projects?

Investors should monitor electricity demand trends, gas price movements and company announcements about project suspensions or coal‑capacity closures. The article suggests these factors are reshaping the economics of new gas projects and could lead to more cancelled or delayed investments in Australia’s power sector.