Household power bills could jump if ageing power plants are paid to remain open, report warns
By business reporter Gareth Hutchens
Posted 8h ago
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Households on Australia's east coast could see their power bills jump by hundreds of dollars a year if they are forced to pay coal and gas plants to keep running, a new report warns.
Key points:
The Energy Security Board has recommended paying ageing power plants to remain open
A new report warns the cost will be borne by consumers
It estimates household power bills could face charges more than double the carbon price
The Institute for Energy Economics and Financial Analysis (IEEFA), and Green Energy Markets, have released a report warning households could face power bills of $182 to $430 more a year if a new proposal goes ahead.
They say those charges would far exceed the impact of the carbon price on power bills.
Their report criticises a proposal by the Energy Security Board (ESB) to introduce a "capacity payment" to the National Electricity Market.
The National Electricity Market (NEM) spans Australia's eastern and south-eastern coasts, connecting five states (and the Australian Capital Territory) with electricity via thousands of kilometres of transmission lines.
Source: Australian Energy Market Operator website)
The ESB says it is concerned about the speed with which renewable energy providers are entering the electricity network.
It has recommended paying ageing power plants to stay open — even if they're not providing power — in case they're needed during extreme demand peaks in coming years.
It said such payments would ensure the system had capacity to meet any demand, and avoid blackouts, without suffering from the sudden withdrawal of ageing coal plants as the network evolved towards lower emissions.
However, Johanna Bowyer, report co-author and IEEFA electricity analyst, says the ESB's proposal would see consumers paying extra money to bail out ageing power generators for little benefit.
“The ESB’s new proposal will require electricity consumers to pay primarily conventional generators such as coal and gas plants for what they could produce if the plant was operating at its full level of capacity, regardless of whether or not, or how often, the generator uses all of its capacity to produce electricity,” Ms Bowyer said.
“While it is true that several coal power plants are facing financial difficulties, our analysis finds that reliability is not at threat by the level of likely coal power plant exits over the next 10 years.
“Thanks in part to actions of the federal government, there is a flood of dispatchable capacity entering the NEM. This covers a range of controllable sources of power from hydro to batteries, bioenergy, gas and even some small coal power plant upgrades.”
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Report co-author, Tristan Edis of Green Energy Markets, says the grid is in a very different situation to when Hazelwood was shut down in 2017.
“From 2017 to 2027, almost 6,500 megawatts of dispatchable power project capacity will be added to the grid,” Mr Edis said.
“To put this into perspective, this is almost double the capacity that will be lost from the next three coal power stations due to close after 2027 — Yallourn, Callide B and Vales Point B.
“This means that all states across the NEM have enough power capacity for the next decade to meet the strict reliability standard of satisfying more than 99.998 per cent of demand.
“There are also thousands of megawatts of further battery projects in development which could be committed to construction if required," he said.
What are the current rules?
Under current rules, power plants are paid for the power they produce which is used by consumers.
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However, when renewable energy generators (such as wind and solar) provide large amounts of energy to the system, ageing power plants (such as coal and gas) can run at a loss, threatening their viability.
The ESB has therefore recommended introducing a "capacity payment" to the market, which would see energy retailers paying additional money to conventional power plants based on the size of the installed capacity of their generators, rather than the power they actually provide.
Federal Energy Minister Angus Taylor has accepted the logic of the ESB's recommendation.
The Energy Security Board was created after South Australia's state-wide blackout in 2016, following a recommendation by the Finkel Review into the security of the National Electricity Market.
Analysis of potential impact
However, to estimate the potential impact the plan could have on household power bills, IEEFA has looked at the "capacity market prices" faced by households in Western Australia's electricity market.
According to its analysis, if households on Australia's east coast faced similar prices, the cost of power bills would rise by between $2.9 billion to $6.9 billion every year.
"We found households in the NEM would see their electricity bills increase anywhere between $182 and $430 a year," Ms Bower said.
"By way of comparison, the cost increase by New South Wales, Victorian and Queensland consumers from the carbon price was between $112 to $150.
"Based on the Western Australian capacity payments experience, consumers could be facing a new charge which is potentially more than double that of the carbon price."
The 22-page report, Energy Security Board's Capacity Payment: Burden on Households, was released on Friday.
Contested space
The "capacity payment" proposal has been welcomed by some players in the energy space, and opposed by others.
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Major energy consumer representative groups such as the Energy Users Association of Australia and the Aluminium Council do not support the proposal.
But large generators say the plan is necessary to keep ageing power plants viable and the power supply stable as the network slowly transitions to renewable energy.
They say sudden withdrawals of ageing power plants could threaten network's ability to provide uninterrupted power through the day.
The ESB's recommendation is sitting with Mr Taylor, and state energy ministers are also considering it.
A spokesman for Mr Taylor questioned the reliability of the report's analysis, and said the government was focused on "ensuring outcomes for consumers."
"A mechanism that values capacity provides the investment signals needed to ensure we have the reliable generation we need to safeguard affordable, reliable power for Australians as more renewables enter our energy system," the spokesman said.
Energy reforms are adrift and consumers and the planet will pay
Today the federal, state and territory energy ministers will meet to discuss a range of proposed, clean energy-based redesigns of the National Electricity Market (NEM), prepared by the Energy Security Board (ESB).
While Barnaby Joyce may still want to see what’s on the climate action ‘menu’, we know already that the Prime Minister’s easiest path to emissions reduction would be to reform the energy market in a way that allows renewables to crowd-out coal.
Institutional investors and millions of households are already building and installing the new solar, wind and batteries that will power the grid of the future.
All the federal government has to do is accelerate the redesign of the electricity system so that it is secure and reliable when coal power stations inevitably retire or fail.
In May the coal-fired Callide C power station in Queensland exploded. This caused cascading failures at Callide B, Stanwell and Gladstone coal power stations.
A month later it was Victoria’s turn when the Yallourn power station flooded, leading the government to declare a state energy emergency.
The Australian Energy Regulator has reported an incredible 1,000 days of “baseload outages” in the second quarter of this financial year.
As the climate crisis worsens and our aging coal fleet falters, there is a clear and urgent need to build a future-proof electricity system that is able to operate securely without fossil fuels.
The Australian Energy Market Operator recently announced that the NEM will be able to operate safely on 100% renewable energy for brief periods by 2025.
The primary challenge of the clean energy transition is political, not technical. Federal energy and emissions minister Angus Taylor has consistently undermined clean energy reform of the NEM and promoted subsidies for gas and coal.
Taylor has twice tried to sack the Board and terminate its reform project. Progressive Liberal energy ministers in NSW and SA teamed up with Labor and Green ministers to keep the reform process going.
Last month the ESB finished the “Post-2025” project and the redesign recommendations were sent to ministers. Taylor seems to be using ‘cabinet-in-confidence’ to control information about the reform process, even though they are not cabinet documents.
The federal government tasked the ESB’s work to the Energy National Cabinet Reform Committee. The problem is that the Administrative Appeals Tribunal recently ruled that the National Cabinet is not a committee of the federal cabinet and therefore not subject to confidentiality. Yet minister Taylor is yet to release the reform recommendations the public.
Bizarrely, Taylor has been campaigning on his preferred ESB recommendation, while at the same time keeping the paper secret. Other ministers are respecting the supposed confidentiality of the process that he is undermining.
Australia Institute research has shown that the policy Taylor supports would create a new market to prop up failing coal power stations and would be bad for consumers. It has been widely condemned by environmentalists and renewables companies.
It makes no sense to supposedly safeguard the NEM by forcing consumers to pay in advance for baseload that is out of action at a rate of 1000 days per quarter.
Imagine if the federal government banked on its coal capacity market to get Australia through a long hot summer and the outage rate was even higher.
For two and half years, hundreds of energy experts from across the industry, stakeholder groups and the research sector have worked with the ESB on the NEM redesign. Millions of dollars worth of effort has been expended.
Now nobody knows when the reform recommendations will be made public or when ministers will make their final decisions.
This policy uncertainty is delaying investment, which pushes up the cost of energy. It is bad for the economy and makes it harder for the Prime Minister to commit to deeper emissions reductions.
The states are stepping up while the federal government fails to lead. States are committing to carbon emissions reduction targets while building out massive Renewable Energy Zones. But they need to do more.
In the immediate-term, the report the states and commonwealth commissioned from the ESB should be made public immediately. It is policy advice to government, not a cabinet document.
In the short-term, the states must agree to schedule the orderly retirement of their remaining coal generators.
In the medium-term, they should draw on constructive recommendations from the ESB to procure the security services and energy resources required to safely manage that phase-out.
It is regrettable, but just as the states have led in Australia’s response to the COVID-19 crisis, they must now step in once again and save the NEM reform process from the clumsy mishandling of the federal government.
Dan Cass is an energy policy and regulatory expert at the independent think-tank the Australia Institute. @danjcass
