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Coal-fired power consumption in Australia hit a record low during the first three months of 2021 and gas generation crashed to the lowest level in 15 years, as renewable energy and falling prices continue to shake up the market.
Figures from the Australian Energy Regulator, released on Monday, shed light on the impact of the clean energy transition sweeping the country’s main power grid and the existential challenges engulfing fossil-fuel generators.
Coal generation for the quarter dropped by 800 megawatts, accounting for just 15,000 megawatts: its lowest first-quarter proportion since the formation of the National Electricity Market in the late 1990s.
During the past March quarter, usually the most energy-intensive period, the development of large wind and solar farms, greater output from rooftop solar panels and milder-than-usual weather slashed prices across the National Electricity Market. The Victorian wholesale price fell the most sharply, to $27 a megawatt-hour from more than $100 the same time last year.
“In summer, and particularly the first quarter, wholesale electricity prices are usually higher with hot weather prompting more use of air conditioners, and higher demand for electricity pushing up prices,” Australian Energy Regulator chair Claire Savage said. “But the first quarter this year was different.”
Rock-bottom wholesale electricity prices – which Ms Savage described as “good news for consumers” because they would eventually translate to lower bills – have been piling enormous pressure on coal-fired generators, which supply the bulk of the country’s power but are now running at a loss and are unable to compete with cheaper renewables during the day.
In March, EnergyAustralia announced it would shut Victoria’s Yallourn brown coal-fired power plant in 2028, four years earlier than planned. AGL, the nation’s top power company, is planning to de-merge its huge coal and gas-fired power stations from its wider retailing business after sinking to a $2.3 billion half-year loss.
Power generation is a dominant source of Australia’s greenhouse gas emissions, and the influx of renewables and impending closures of coal-fired plants will help reduce the carbon footprint of the fossil fuel-intensive energy market which relies on coal and gas for about 80 per cent of the nation’s needs.
However, power industry leaders and the Morrison government are ramping up warnings this year that unexpectedly early shutdowns of coal-fired power plants could raise the danger of blackouts or price spikes in the future unless there was more investment in dispatchable” assets. These include facilities such as gas generators or big storage batteries, which are able to supply on-demand electricity in times when weather conditions for wind and solar power are unfavourable.
A report by the Grattan Institute think tank has determined the national energy market could be rid of coal entirely within the next 20 years without blackouts and price spikes, but also warned that rushing to 100 per cent renewable energy would be prohibitively expensive given the need to build enough dispatchable power capacity to plug gaps in peak-usage periods.
Under the least-cost approach to eliminating coal, the Grattan Institute’s Tony Wood said gas would continue to play a “critical back-up role” for renewable energy but not an expanded one.
The chair of the Commonwealth’s Energy Security Board, Kerry Schott, last month said “the economics of coal is that nobody will build it” and the expected end of the life spans of existing plants were approaching faster than anyone had previously anticipated.
As falling wholesale power prices slash coal generators’ profits, Ms Schott called for a nationally co-ordinated approach to address “concerning and urgent” threats to the reliability of the energy grid.