Yallourn the latest coal casualty

Another coal-fired power station has felt the sting of falling demand – and this time it's a big one: the 1450 MW Yallourn plant in Victoria. The carbon price, energy efficiency and renewable energy are showing coal slaying capabilities.

The government is beginning to look extremely shrewd in its decision to can the plan of paying coal generators to close via ‘contracts for closure’. News this morning has filtered through that Energy Australia (formerly TRUenergy) will be shutting one of its four generators at the 1450 MW Yallourn power station. The decision will see around 360 MW of capacity sidelined.

While the carbon price appears too weak to transform Australia’s electricity supply in itself, in a pincer movement with falling demand, driven in part by greater energy-efficiency and manufacturing restructuring, as well as the injection of additional supply from the Renewable Energy Target – coal power units are falling like flies.

The Energy Australia decision follows similar announcements at several coal-fired power plants across the country, with coal-fired power being sidelined in Australia’s four biggest states this year. Other plants to completely or partially shut down include Tarong (Qld), Munmorah (NSW)*, Energy Brix (Vic), Playford (SA) and Northern (SA).

In all, almost 2500 MW has now been mothballed or permanently shut down (this reduces to just under 2000 MW in the six months in and around summer when the Northern power station is back on line).

The company noted the move was a sign of the carbon price working to reduce emissions, but added it was also hurt by weak wholesale prices, as a result of the RET and falling demand.

Looking at current electricity baseload futures contracts one can see how much harder things have become for Yallourn. The price for each quarter to the end of 2013 is listed below. Once you deduct Yallourn’s carbon cost (based on emissions of 1.42 tonnes CO2/MWh) the end revenue the company receives averages about $20 per MWh. This is 42 per cent below the average historical Victorian market price prior to the introduction of the carbon tax of $34.70.

Source: d-cyphaTrade

The carbon price is making its presence felt, but falling demand combined with additional renewable energy with zero carbon costs are what make it bite on coal generators, ensuring they are unable to raise prices by enough to recover its cost. Gas-fired power would have not been able to induce the same effect due to its rapidly rising price and the fact it also bares a noticeable carbon cost as well.

In relation to the decision to mothball part of Yallourn, EnergyAustralia’s Mark Collette complained:

“The current design of the Renewable Energy Target threatens the sustainability of Australia’s electricity market and needs to be recalibrated in line with falling demand, easing cost pressures on Australian electricity customers.”

The company again pointed to modeling from ACIL Tasman to argue the RET should be altered in the interests of saving consumers $53 billion in costs, while saying the RET had already forced wholesale pool prices down.

But given the fact that it is depressed wholesale prices that ultimately induce coal power plant closures, not the RET itself, the omission by ACIL to detail the offsetting impact of reduced wholesale market prices for consumers from the RET is extremely intriguing. This is something we’ve explained in a prior article. Also we’ve shown how significant this effect could be, estimating that reduced wholesale pool prices from the RET could even save large energy consumers more money than they pay in RET compliance costs.

The trident of a carbon price, energy efficiency and renewable energy are proving to be incredibly effective in slaying the pollution from coal-fired power. And it seems that in spite of threats, the lights are still on.

* The 600 MW Munmorah plant had been idle for two years before a decision to close it was made by Delta Electricity a few months ago.