Scott Morrison says closing coal plants will drive up electricity prices. Is he right ? | Graham Readfearn
Prime Minister Scott Morrison was convinced of only one thing this week when news broke of an $8 billion bid to buy the country’s biggest greenhouse gas emitter to close its coal-fired power plants early.
“Let me be very clear on something,” Morrison said. “We need to make sure that our coal-fired power generation runs until it runs out, because if it doesn’t, power prices go up, they don’t go down.”
A clearer statement would be hard to find. But is Morrison right?
“There may be some truth to that, but it fundamentally creates a bad image,” says Tony Wood, an energy and climate policy expert at the Grattan Institute.
So what is really going on?
Last weekend, it emerged that tech billionaire Mike Cannon-Brookes and Canadian asset management firm Brookfield had launched their extraordinary takeover bid for energy producer and retailer AGL.
AGL’s board of directors rejected the offer, and now the Cannon-Brookes consortium is evaluating its next steps.
Wood says that if AGL were taken over within a rough time frame set by Cannon-Brookes, it would give the Australian energy market about eight years’ notice to plan and prepare (that’s much longer than the three years and semi-statutory).
“So even if there is a price increase – and it’s not clear that there will be – then what happens to replace these coal plants is what will dictate the prices. But the prices don’t don’t always rise – that’s not true, but there is an underlying market reaction.
Dr Dylan McConnell, an energy systems expert at the University of Melbourne, said Morrison’s statement had a built-in assumption that “nothing else is being built to replace coal-fired power stations” when it is not is not what is offered.
It’s a climate plan
But first, what does Cannon-Brookes want to do?
AGL owns three large coal-fired power plants which currently emit around 40.5 million tonnes of CO2 per year, according to data from the Clean Energy Regulator.
Two of them – Loy Yang A in Victoria and Bayswater in New South Wales – take the top two spots on a list of the country’s highest-emitting power stations.
Loy Yang A is Victoria’s largest power station and releases 16.6 Mt of CO2 in the atmosphere per year due to the burning of lignite. Earlier this year, AGL announced that it would bring forward its planned shutdown from 2048 to 2045.
AGL’s black coal-fired power station in Bayswater – the state’s largest energy asset – emits 14 Mt per year. The company wants to shut it down between 2030 and 2033 – at least two years ahead of a previous 2035 plan.
A third power station – Liddel, near Bayswater – will start closing this year, which means the end of the 9.9 Mt of CO2 which is released each year from the burning of black coal.
Cannon-Brookes – a strong advocate for climate action and renewable energy – and his partners want all coal-fired plants to be shut down by around 2030.
He says the consortium has $20 billion to spend replacing coal-generated electricity with renewables and storage, confidently saying that would lower prices, not raise them.
From a climate change perspective, the big challenge facing governments around the world is getting rid of fossil fuels as quickly as possible.
When Morrison said this week that the government was ‘very committed’ to running coal-fired power stations until the end of their lives, it’s a good time to remember that the government signed an international climate agreement “to reach the global peak of greenhouse gas emissions as soon as possible”. .”
AGL’s ongoing story came after a major announcement last week that Origin was to bring forward the closure of its coal-fired Eraring power station – Australia’s largest power station – to 2025. That’s seven years earlier than expected.
This created intriguing momentum with Australian Emissions Reduction Minister Angus Taylor expressing his “bitter disappointment” that a plant that pumps 13 Mt of CO2 a year was going to close early.
Taylor also took the opportunity to remind Australians that after the sudden closure in 2017 of the coal-fired Hazelwood power station in Victoria – at the time the dirtiest power station in the country – electricity prices rose by 85% . Cause = effect?
The conclusion that some might draw is that closing a coal-fired plant earlier than expected leads to higher prices. But McConnell says the Hazelwood story is an “entrenched narrative” that is overly simplistic and mostly false.
Electricity prices rose when Hazelwood closed, but McConnell says the main cause was international gas prices and the functioning of the Australian electricity market.
McConnell conducted a study on these price increases.
He says that if the Hazelwood closure had a direct effect, what was much more important was that the owners of coal-fired power plants in the electricity market knew that gas was expensive.
This led some to “strategically price” their gas competitors to bid for higher cost electricity supply that was just below the price of gas.
McConnell adds that it’s a more complicated set of events than the simpler idea of one thing (Hazelwood closing) leading to another (higher prices).
“It is more complex to explain that the opening of the gas export market to international prices then had repercussions on the domestic electricity market. But that’s much closer to the truth about what happened.