The prime minister, Scott Morrison, was convinced of only one thing this week as news came of an $8bn bid to buy the country’s biggest greenhouse gas emitter in order to shut its coal plants early.
“Let me be really clear about something,” Morrison said. “We need to ensure that our coal-fired generation of electricity runs to its life, because if it doesn’t, electricity prices go up, they don’t go down.”
A more unequivocal statement would be hard to come by. But is Morrison right?
“There might be some truth to it, but that fundamentally creates the wrong picture,” says Tony Wood, an energy and climate policy expert at the Grattan Institute.
So what’s actually happening?
Last weekend it emerged that tech billionaire Mike Cannon-Brookes and Canadian asset management company Brookfield had launched their extraordinary takeover bid for energy generator and retailer AGL.
The AGL board knocked the bid back, and now the Cannon-Brookes consortium is weighing up its next steps.
Wood says if AGL was taken over under a rough timeframe set out by Cannon-Brookes, this would give Australia’s energy market about eight years’ notice to plan and prepare (that’s a lot longer than the statutory three and half years).
“So even if there is a price increase – and it’s not clear there would be – then what happens to replace those coal plants is what will dictate prices. But prices don’t always just go up – that’s not true. But there is an underlying market reaction.”
Dr Dylan McConnell, an energy systems expert at the University of Melbourne says Morrison’s statement had an inbuilt assumption that “nothing else gets built to replace the coal plants” when that isn’t what is being proposed.
It’s a climate plan
But first, what does Cannon-Brookes want to do?
AGL has three large coal-fired power plants that currently emit about 40.5m tonnes of CO2 a year, according to data from the Clean Energy Regulator.
Two of them – Loy Yang A in Victoria and Bayswater in New South Wales – occupy the top two places on a list of the country’s highest emitting power stations.
Loy Yang A is Victoria’s biggest power station and releases 16.6 Mt of CO2 into the atmosphere a year from burning brown coal. Earlier this year AGL said it would bring forward its planned closure from 2048 to between 2040 and 2045.
AGL’s black coal power station at Bayswater – the state’s biggest power asset – emits 14 Mt a year. The company wants to close it between 2030 and 2033 – at least two years ahead of a previous 2035 plan.
A third power station – Liddel, close to Bayswater – will start shutting this year, meaning an end to the 9.9Mt of CO2 that’s released annually from burning black coal.
Cannon-Brookes – an outspoken advocate for climate action and renewable energy – and his partners want all the coal plants closed by about 2030.
He says the consortium has $20bn to spend to replace the electricity generated by the coal plants with renewable energy and storage, saying confidently this would lower prices, not lift them.
From a climate change perspective, the broad challenge facing governments around the world is to get off fossil fuels as quickly as possible.
When Morrison said this week the government was “very committed” to running coal plants until the end of their lives, it’s a good time to remember the government has signed an international climate agreement “to reach global peaking of greenhouse gas emissions as soon as possible.”
Eraring error
The ongoing AGL story came after a major announcement last week that Origin was to bring forward the closure of its Eraring coal plant station – Australia’s biggest power station – to 2025. That’s seven years earlier than expected.
This set up the intriguing dynamic of Australia’s emissions reduction minister, Angus Taylor, expressing his “bitter disappointment” that a plant that pumps out 13 Mt of CO2 a year was going to close early.
Taylor also took the opportunity to remind Australians that after the sudden 2017 closure of the Hazelwood coal plant in Victoria – at the time the country’s dirtiest power station – power prices went up by 85%. Cause = effect?
The conclusion some might draw is closing a coal plant earlier than expected causes prices to go up. But McConnell says the Hazelwood story is an “ingrained narrative” that’s too simplistic and mostly wrong.
Power prices did go up around the time of the Hazelwood closure but McConnell says the dominant cause was the international price of gas and the way Australia’s electricity market works.
McConnell led a study looking at those price rises.
He says while Hazelwood closing did have some direct effect, what was far more important was that owners of coal plants in the electricity market knew that gas was expensive.
This led some to strategically “shadow price” their gas-fired competitors to make offers to supply electricity at higher costs that were just short of the price of gas.
McConnell adds it’s a more complicated set of events than the simpler idea of one thing (the closure of Hazelwood) leading to another (higher prices).
“It’s more complex to explain that opening up the gas export market to international prices then flowed into the domestic electricity market. But that’s much closer to the truth of what happened.”
