EnergyAustralia's tale of two coal plants

Back in October there was much fanfare about one of the four generators at the Yallourn power plant being mothballed. Now in January it's back on, although there's been decidedly less press coverage – none in fact.

Yallourn, situated in Victoria's Latrobe Valley and owned by EnergyAustralia, is one of the country's largest power stations and provides just shy of a quarter of Victoria's electricity needs. The decision in October to idle one generator saw 360 MW of the 1450 MW capacity sidelined.

At the time of the announced closure the news was tied to a press release pushing EnergyAustralia's case for the renewable energy target to be watered down.

The headline for the media statement read: “Changes to Renewable Energy Target required for a sustainable electricity market.”

The first sentence, however, did not exactly marry with the headline: “EnergyAustralia will scale back generation at Yallourn Power Station in Victoria, as the carbon price significantly increases the costs of operation together with weak wholesale electricity prices and falling electricity demand.”

Now the generator is back online and ready to capitalise on the higher prices as demand lifts during the hot summer months. This move is in spite of the RET Review finding the current policy should largely be untouched.

The whole episode shows the market is working. When demand is soft, production can be idled and when demand is high, supply can be increased. It's been seen in South Australia with the Northern power station and now in Victoria with Yallourn.

For all the talk of risks the lights could go out as coal-fired generators reduce their capacity, there is no evidence such an event is even the slightest possibility.

The news comes at a time when another coal generator in New South Wales is set to reduce its output to cut costs in light of weak demand.

Delta Electricity's 1000 MW Wallerawang power station will have one of its two 500 MW generators mothballed for twelve months from mid-January, a decision made by EnergyAustralia, which has a ‘gentrader' agreement with Delta at the site.

The decision is interesting for three reasons:

-- The power plant is one of the sites up for sale in the NSW government's next round of electricity privatisation.

-- EnergyAustralia purchased output rights to the site just two years ago.

-- The decision has been made at the height of summer, when demand is at its peak.

In late 2010, EnergyAustralia (known as TRUenergy at the time) agreed to pay $1 million for the rights to the output from Wallerawang and promised to provide $240 million for capital improvements at the plant. The agreement sees it pay Delta for operating the site in return for the benefit of selling all electricity.

The deal is contracted to last through to 2028, but EnergyAustralia is able to exit the contract in 2018 if it wishes.

Energy Australia is considered the logical bidder for the plant in the latest round of privatisation, but this latest news certainly makes the bargaining power of the state government pretty weak.

It is also a little surprising that this has occurred, when as late as December 20, AEMO released its understanding of future available capacity where it had been informed that Wallerawang would have 1000MW available for this year.