NSW coal generators stare down the abyss

With electricity demand going backwards, profits for NSW generators are tumbling. No wonder the NSW government's estimates for privatisation are questionable according to AGL.

A few days ago AGL chief executive Michael Fraser gave a presentation where he stated that the NSW government coal generators were of “questionable” value given NSW’s depressed electricity demand and the major surplus of generating capacity.

Yet Premier O’Farrell is saying he expects a price of $3 billion dollars “and nothing less” from the privatisation of these generators.

According to analysis by Climate Spectator using NEM Review and AEMO data, since the carbon price was introduced NSW coal generators have suffered a reduction in cash profits between 45 and 70 per cent relative to the average of the prior five financial years.

The reality is that the NSW coal generators are the meat in the sandwich of the National Electricity Market. 

To the north they face some relatively new, efficient and lower emission Queensland coal generators that they can’t push off their perch. Then to the south they have the dirt cheap brown coal generators, several of whom are old and emissions intensive, but their fuel is so cheap it almost doesn’t matter.

Then you add the fact that electricity demand has taken a bigger dive in NSW than any other state and a $23 carbon price, and the NSW coal generators start to really hurt.

Life is then further complicated by the fact that when the South Australian wind really blows it squeezes the Victorian brown coal generation into NSW. And provided the Coalition doesn’t fiddle with the Renewable Energy Target, there will be an awful lot more of this wind power to contend with.

The table below details how the profits of each generator have dived since July 2012.

Changes to output and profit of NSW coal generators
2012-13 financial year to date relative to average of 2006-07 to 2011-12

Graph for NSW coal generators stare down the abyss

Source: NEM Review and generator cost data from AEMO 2011 National Transmission Network Development Plan

Mothballing or closures of generating capacity seem to be inevitable and a number of units have had extended periods out of action as shown below.

Graph for NSW coal generators stare down the abyss

Source: NEM Review