30 March, 2017
Courtesy of the Australian
Wholesale electricity prices jumped in anticipation of yesterday’s closure of the Hazelwood power station in Victoria, with analysts forecasting 10 to 20 per cent increases in household power bills next year.
Wholesale electricity prices have more than doubled to $120 per megawatt hour in NSW since September and to $80MWh in Victoria since January as generators take advantage of declining supply.
Futures contracts, which anticipate the price a year ahead, are up 50 per cent since January and 200 per cent from a year ago in the four mainland states that make up the National Electricity Market. Prices are at $125MWh in Victoria and $118MWh in NSW.
ITK Consulting principal David Leitch estimated the rise in prices since April last year would cost the National Electricity Market as much as $11 billion.
Mr Leitch said bill increases for households and large commercial users of 20 per cent were “entirely likely”.
He said the market was out of balance because long-running carbon and energy policy uncertainty had stalled investment in new generation capacity as ageing power plants such as Hazelwood, Wallerawang in NSW and Northern in South Australia approached the end of their lives.
At the same time, demand had been steady, with the surprise decision to keep the Portland aluminium smelter in Victoria open effectively adding five terawatt hours of demand to the system.
Mr Leitch said generation closures had increased the power of oligopoly generators such as AGL, which also owns a retail electricity business, and the Queensland government-owned generators, which have been consolidated down from three to two.
The final two units of the ageing Hazelwood coal-fired generator were shut yesterday by owners Engie and Mitsui, withdrawing 1600MW of generation capacity, or 25 per cent of the state’s power supply.
The federal government has rejected calls to intervene and keep the plant operating, while the South Australian government was reported to have rejected a request from power company Alinta for $25m to keep the Northern power station, the state’s last coal-fired generator, operating for another five years.
Engie’s local head Alex Keisser said yesterday: “The decision to close Hazelwood was extremely difficult and was made only after we investigated all options to keep the business open.
“While it was state-of-the-art when it opened in 1964, it has now reached the end of its productive life, lasting far longer than anyone would have anticipated when its life began.”
Analysts at Morgan Stanley said the shutdown could have effects across the National Electricity Market because it would reduce exports to other states. But it would be a positive for electricity retailers such as AGL and Origin.
Origin yesterday announced a deal with Engie to revive the dormant Pelican Point gas-fired generator in South Australia by supplying more gas at peak times in exchange for fixed-price electricity to be sold to Origin’s customers in that state.
Mr Leitch said there had been a two-year lag in building new capacity, with wind farms in the ACT coming on line under its reverse auction system.
“There is actually enough new supply being built to replace Hazelwood, but because of the renewable energy target review and the anti-wind stance of federal government it’s being delayed by about two years over when it would otherwise have occurred,’’ he said.