Fall in demand for power could mothball generators
The warning, at a public forum on Tuesday, comes as wholesale power prices are at their lowest in several years.
Rising retail power prices have choked off demand, along with the idling of manufacturing and the strong Australian dollar.
Demand in the national electricity market remains soft, with continued incursions by solar and wind energy, Origin Energy's group manager, commercial, analysis and risk services, Phil Moody, told an Independent Pricing and Regulatory Tribunal forum on power prices on Tuesday.
"The supply side is not responding," he said. "I would expect mothballing. That hasn't happened."
Last October, EnergyAustralia shut down a unit at its Yallourn power station in Victoria, although a rise in power demand in summer prompted it to restart the unit.
It now operates the unit intermittently, in line with power demand, along with a unit at the Wallerawang power station in central western NSW.
The continued soft wholesale electricity price comes as the NSW government is seeking to sell off its power generation assets, initially by selling the power stations, which are counter parties to so-called gentrader contacts held by Origin Energy and EnergyAustralia.
Electricity demand has been notably soft in NSW following the closure of the Kurri Kurri smelter along with the decision by BlueScope Steel to idle one of its remaining blast furnaces at Port Kembla.
"NSW is probably closer to 10 per cent down than 5 per cent down on two years ago," UBS analyst David Leitch said.
That could change if Alcoa closes its Portland aluminium smelter in Victoria, which is widely expected if the dollar does not decline sooner rather than later.
Even though no generators have been mothballed, a number of power stations such as Collinsville and Tarong in Queensland, along with Tallawarra and Eraring in NSW, have reduced output.
"Everyone is concerned about high gas prices, and this will flow through to Tallawarra [owned by EnergyAustralia], and Liddell [owned by Macquarie Generation] could be the next one on the block," Mr Leitch said.
"You can see Tallawarra backing right off in NSW," AGL chief executive Michael Fraser said last week of the outlook for the power station.
Mr Fraser also predicted a resurgence of coal-fired capacity over the next few years if the carbon tax was axed, as the federal opposition has stated it will do if it is elected in September.
More at risk from rising gas prices may be EnergyAustralia's Torrens Island unit in South Australia.
The wholesale electricity price is holding around $50 a megawatt hour. If adjusted for the carbon price of $23 a tonne, this puts the price at a very low $27, which is undermining industry profitability.
Frequently Asked Questions about this Article…
Wholesale electricity prices are at their lowest in several years because rising retail prices have reduced demand, manufacturing has idled, the strong Australian dollar has weighed on energy-intensive industries, and increased supply from solar and wind has further softened demand in the national electricity market.
Yes — industry commentators expect mothballing could happen because sustained low wholesale prices, weak demand and growing renewable supply make some plant uneconomic. The article notes the supply side 'is not responding' and that mothballing would be an expected industry reaction, although widespread mothballing had not yet occurred at the time of the report.
Several stations have cut output or been run intermittently: EnergyAustralia shut a unit at Yallourn in Victoria last October and now operates it intermittently (along with a unit at Wallerawang in NSW). Other stations that have reduced output include Collinsville and Tarong in Queensland, and Tallawarra and Eraring in NSW.
Solar and wind are increasing the supply side in the national electricity market, which is contributing to softer demand for conventional generators and putting downward pressure on wholesale prices, making some thermal generation less profitable.
High gas prices raise operating costs for gas‑fired plants and can push units like Tallawarra and Torrens Island to back off output or be at greater risk. Meanwhile, if you adjust the current wholesale price (about $50/MWh) for the carbon price of $23/tonne, the effective price falls to around $27/MWh, which undermines industry profitability.
The NSW government is seeking to sell its power generation assets, which are counterparties to so‑called gentrader contracts held by Origin Energy and EnergyAustralia. Changes to ownership of those stations could affect contract counterparties and market dynamics for those companies.
Demand in NSW has been notably weak following the closure of the Kurri Kurri smelter and BlueScope Steel idling a blast furnace at Port Kembla, with UBS estimating NSW demand is closer to 10% down versus two years ago. Demand could increase if large industrial users such as Alcoa decide not to close their Portland smelter, which would be influenced by the exchange rate and other factors.
Yes. The article quotes AGL’s CEO predicting a resurgence of coal‑fired capacity over the next few years if the carbon tax were axed, as proposed by the federal opposition, which would alter the economics and potentially prompt more coal generation to return.
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