Hazelwood power station closure the latest blow for coal – abc news (australian broadcasting corporation)

Like a junction point in those intriguing domino constructions which sends tiles tumbling in all directions, the closure of Victoria’s Hazelwood power station will have rapid and widespread implications for Australia’s national power grid and its customers.

While the immediate impact is a loss of jobs, it is also likely to lead to higher energy prices, a desperate search for new capacity, a rethink on energy policy and quite possibly the closure of Alcoa’s Portland aluminium smelter.

Over the past three years four big coal powered generators embedded in the east coast market have been deemed financially unviable and closed.

First to go was Wallerawang – owned by the Hong Kong listed giant CLP, through its local subsidiary Energy Australia – which supplied around 5 per cent of New South Wales’ generation and was mothballed over two stages from 2013.

Hazelwood’s smaller Latrobe Valley neighbour, the Morwell Power Station – also owned by CLP – gave one month’s notice prior to shutting down in August 2014, the same month Alcoa closed its Anglesea plant in Victoria’s south-west, while earlier this year Alinta pulled the pin on its Northern power plant at Port August in South Australia.

Just like dominos, once a coal-fired generator falls over that’s it; they don’t tend to bounce back up – the restart cost is generally prohibitive.

Hazelwood ranks as Victoria’s second biggest generator, with a 1,600 megawatt capacity, supplying a quarter of the state’s power needs and 5 per cent of Australia’s market.

It also has the dubious distinction of being ranked as the developed world’s dirtiest power station in a 2005 study by the conservation group, World Wide Fund for Nature.

Hazelwood’s closure is a mix of economics – with the plant facing very expensive maintenance work to bring it up to scratch – and philosophy.

Its majority owner ENGIE, which itself is owned by the French Government, has signalled its intention to shift away from coal to renewable energy while trimming its global ambitions.

That philosophical change at ENGIE also brings into focus the future of its other Australian assets; the Loy Yang B generator- also in the Latrobe Valley and also jointly-owned with a minority stakeholder, Mitsui of Japan – and the strategically important Pelican Point gas-fired generator in South Australia, which had been cut back to half its capacity, only to return to the frontline after the state’s disastrous blackout in July. Gas up yr hearse Price of electricity futures surge on shutdown news

The human toll of the 800 jobs to go at Hazelwood and the economic hardship in a region with unemployment already running at almost four times the national average is the most immediate impact.

While the University of Melbourne’s Roger Dargaville has argued Hazelwood’s closure would have only a limited impact on prices, there is evidence to suggest otherwise.

Futures prices in New South Wales and Victoria have jumped by $20 per MWh (megawatt hour) – or 50 per cent – since April, when SA’s Northern plant closed and talk of the Hazelwood plant closure gained credence.

Principal at energy consultant ITK, and one of the nation’s most experienced and respected utility analysts, David Leitch said a $20/MWh increase in the price of electricity “would not be a surprise at all” given the cumulative impacts of the Wallerawang, Northern and Hazelwood closures.

For residential consumers that would translate to an 8 per cent price rise, while for large industrial customers it would be an even steeper 14 per cent hike.

AGL’s Loy Yang A could squeeze out an extra 2 TWh (terawatt hours) a year according to Mr Leitch but, apart from that, there is very little spare capacity in Victoria or South Australia

There is a fair bit of spare baseload capacity at Origin Energy’s Eraring and AGL’s Liddell power plants, but in the case of Liddell it has significant reliability issues and is slated for closure in 2022.

“They could run gas-fired generation up, but they would be vastly expensive,” Mr Leitch said. Gas monkey monster truck Portland’s aluminium smelter threatened by higher prices

The big swing factor could be the future of Alcoa’s electricity hungry aluminium smelter at Portland that is now looking rather shaky after the Hazelwood decision.

Despite receiving a very generous subsidy from Victorian taxpayers, said to be in excess of $120 million a year at current prices, the Portland smelter still struggles to break even with a wafer thin $3 million earnings margin last year.

Alcoa has closed its uneconomic Port Henry smelter and Anglesea power station down the road and, without the long term security of cheap power, it would not be difficult to see the Portland operation shut up shop.

The disappearance of car making from the industrial landscape and ongoing efficiency gains in things like lighting also lowers power demand – but capacity is falling and unlikely to be replaced in any meaningful scale in the next few years.

Generators aren’t charitable organisations and the survivors among the coal burning dinosaurs will have a rather unsentimental view on prices.

“They (existing generators) would all milk the market for what it’s worth,” Mr Leitch observed. Gas mileage comparison Coal-fired generation closures likely to continue

Mr Leitch said AGL is the obvious beneficiary of the Hazelwood closure, owning the biggest and one of the younger brown coal-fired plants in Victoria, although it is an advantage it is unlikely to enjoy for long.

“Overwhelming everything is the COP21 treaty that implies 80 per cent of Australia’s coal fired generation should close by 2030 and Australia is very ill-prepared to deal with it.”

The 2015 United Nations Conference of Parties (COP 21) treaty, which set a goal of keeping global warming to less than 2 degrees compared to pre-industrial levels, coincidently comes into force tomorrow, having met its minimum requirement for ratification.

By their nature, they are large “chunks” of capacity and as each one drops out it represents an increasingly large percentage of power taken out of the grid.

“We don’t have the flexibility of gas – we’ve sold it all to China and Japan – and there’s been no sensible long term planning about the eventual transition to a low carbon future, given there has been very little new renewable capacity built for years,” Mr Leitch argued.

It is virtually impossible to build new capacity to replace Hazelwood before closure, but Mr Leitch recommends a number of policy changes to minimise the damage.

They include accelerating Victoria’s 40 per cent renewable energy target to ensure more generation comes on stream in the next two years, pushing ahead with a new transmission link between New South Wales and South Australia and consideration of building a second link between Tasmania and Victoria.

Given wind and solar will not be the entire answer, Mr Leitch suggests greater federal support for utility and residential scale storage as perhaps the most important step to providing new base-load power at a manageable cost.