Energy Spectrum Australia

Energy Spectrum Australia | Issue 5

Welcome to the fifth edition of Energy Spectrum Australia.

The below extract has been taken from our fifth edition, and if you have enjoyed reading this article and want to read more about the latest developments in the Australian energy market, please contact Ben Cerini, b.cerini@cornwall-insight.com.au  for more information.

The Federal Government announced it is looking into the feasibility of two new Queensland electricity generation projects, including a coal-fired plant at Collinsville, with the aim of lowering power prices in the region.

On 8 February the Federal government announced up to $4mn for a feasibility study assessing a 1GW high efficiency low emissions (HELE) coal fired generator in Queensland. Speaking in Parliament on 11 February, Assistant Minister for Forestry and Fisheries Jonathon Duniam told Parliament: “The government is supporting new electricity generation projects in North and Central Queensland which will drive down power prices, improve reliability and support a stronger economy.”

The government is using funds from the $10mn Supporting Reliable Energy Infrastructure program announced last election to support the studies. Mr Duniam acknowledged that “Those projects will need to stack up and make commercial sense to get private sector investment and necessary state government approvals.” The Deputy Leader of the Government, Simon Birmingham the Minister for Trade, Tourism and Investment stated that the government is only investing in feasibility studies and that “[t]he government is not funding a new coal-fired power station.” In a further debate on 12 February, Senator Birmingham stated that if there was a business case that stacked up then investment would follow. However, he stressed that the government’s focus in Queensland was on “the reliability of energy [and the] pressures in terms of the affordability of energy.”

In response, Labor’s Matt Thistlewaite said on 12 February: “the denial faction in the coalition is pushing for more coal-fired power stations…and they want the government to underwrite it because the corporate sector won’t touch it with a barge pole.”

Minister for Energy and Emissions Reduction Angus Taylor referred to the need for “system strength” citing an independent study identifying a need for new synchronous generation in Central and Northern Queensland as well as stating that this investment in new generation will “increase competition, keep the lights on and lower prices”.

The support for coal fired generation in Queensland is politically motivated by the current government to appease internal Liberal and National party climate sceptics as well as solidify votes in northern Queensland. However, the government’s continued reference to projects needing to be commercially viable allows them to appear invested in supporting coal while also providing them a legitimate “way out” (if voter sentiment or party positions change).

Even if a new coal fired generator were to be commissioned in Queensland there are a number of reasons why it would not drive down prices. The cost of new black coal generation in Australia is currently estimated to be between ~$80-$110/MWh, significantly more than current average futures range from $55/MWh in CY20 to $52/MWh by 2023. Low futures are a robust confirmation that Queensland is currently one of the best supplied regions in the NEM. Admittedly, prices are expected to increase at the end of the decade as coal fired plants begin to retire. Much of that is in NSW as the newest coal fired generators are located in Queensland. Additionally, there is no shortage of supply in Queensland and therefore without being significantly cheaper than the marginal generator Queensland prices won’t fall. Furthermore, there is a lack of competition in Queensland (due to the proportion of government owned coal generation) which leads to less cost based bidding and higher prices particularly over shoulder seasons where prices are traditionally depressed across the NEM. More government subsidised coal is unlikely to solve this problem or push process down.

In addition to not lowering prices Queensland is not currently suffering from any reliability or system strength issues yet. However, given the amount of panned solar generation in northern Queensland we may find that system issues similar to those being experienced in North Western Victoria begin to arise. The location of the proposed coal generator in Collinsville could provide synchronous support given the pipeline of more than 1,600MW of planned solar generation in northern Queensland.

Given current physical and market conditions it is hard to see any value being generated by new coal fired power plants.