Fall in demand for power could mothball generators
The power generation industry could be forced to mothball capacity because of sustained low wholesale electricity prices, slack demand and rising renewable energy supplies.
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.