Another coal power station bites the dust

The mothballing of 700MW of the Tarong coal power station illustrates how badly black coal is getting squeezed by a combination of reduced demand and, increasingly, by growth of renewables.

Last week, Stanwell, a Queensland government-owned electricity generation company, announced it would be mothballing 700MW of capacity from the Tarong coal power station. Two 350MW units would be put on ice – one in October and another in December this year.

According to the company, these units will be withdrawn from service for at least two years or until wholesale electricity demand improves. It said this was due to operating in an over supplied energy market with lower than forecast electricity demand. Removing these units would then allow the company to reduce its operations and maintenance costs. It might also help inflate market prices for its remaining generation capacity.

This decision illustrates just how badly black coal generators in the NEM are getting squeezed. To date the coal power station closures and mothballing announced over the past year have been of relatively old and high cost plants. But Tarong Power station was only built in 1985 and has reasonably low operating costs.

The chart below taken from Stanwell’s last annual report, illustrates a large growing overhang of excess generating capacity (light grey) relative to flat-lining average demand (dark grey). Contrary to the claims of the current Queensland energy minister, the last thing Queensland needs is new baseload generation. And even in relation to peak demand of nearly 9000MW, the state has a spare 2000MW.

Queensland average electricity demand and available supply

Source: Stanwell Annual Report - 2012

Stanwell observed in its annual report that:

“Overcapacity in the Queensland market and softening average demand has dampened spot and contract prices for electricity and been a significant driver in reducing returns from our generation business.”

It subsequently explained the reason for reduced demand:

“Key drivers of the decrease in average demand include milder weather conditions, increased energy efficiency in the residential and industrial sectors, increased solar photovoltaic penetration and demand-side management initiatives.”

The table below illustrates that a number of Queensland coal-fired power stations are operating at capacity factors well below what would be ideal for a coal baseload generator (75 per cent or greater). Both Swanbank B and Collinsville are due for retirement so their extremely low utilisation is not too surprising. But in the last few years Tarong, Stanwell, Gladstone and Callide B are well below the levels that are ideal for coal generators. Tarong’s capacity factor took a dive in 2007 and 2008 due largely to water restrictions associated with the drought, but it has never properly recovered since then.

Utilisation/capacity factor of Queensland black coal generators

Source: Global Roam NEM Review

Eventually something had to give in the Queensland electricity market, and Stanwell has bitten the bullet with Tarong. 

Interestingly, Stanwell’s annual report suggests that the coal consumption of Tarong power stations has reduced in close alignment with reductions in their generation, contrary to claims published last month that coal-fired power stations would continue burning coal in spite of reductions in demand for their output partly attributable to renewable energy. Tarong and Tarong North’s combined generation declined by 11.4 per cent between 2008-09 and 2011-12, and tonnes of coal consumed declined by 12.1 per cent.

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