Archive for November, 2016

Hazelwood & hyperbole

Few things were more predictable than that Engie making public its decision to shutter Hazelwood power station would trigger bursts of hyperbole from the usual suspects.

It’s all there on the Internet and it would be tiresome indeed to call out even some of the “beginning of the end for coal” commentary, although “coal is over” from the Greens’ Adam Bandt is worth a mention. What does he make, I wonder, of three plants of similar total capacity to Hazelwood currently being built in Brazil, among 2,400 coal-fuelled generation units under construction or being planned around the world?

The local hard coal fact is that brown and black versions of the fuel provided 75.9 per cent of NEM electricity production in the 12 months to September; Hazelwood’s share of the market is about five per cent.

Engie’s senior manager in Australia, Alex Keisser, nailed things yesterday when he commented that “the historical direction is to go to less coal” but a transition will be the work of “a few decades” and “needs to be done in a very considered manner.”

The Hazelwood decision is a great deal about economics despite Victorian Premier Daniel Andrews (who tripled the State’s brown coal royalty in his last budget) insisting yesterday that it is “simply” about Engie wanting to get out of coal generation globally.

Keisser says Engie has considered a range of options to revamp the power station, including switching to natural gas, “and the power price today didn’t make these options viable.”  His boss, Isabelle Kocher, has put out a media statement in France observing that the planned closure of Hazelwood in March is in line with the company’s global strategy to gradually end its coal activities, concentrating on low-carbon power generation, including gas, but adding: “Hazelwood has been operating in difficult market conditions, with low market prices and a surplus of supply.”

The company is also going to put up its other Victorian brown coal plant, Loy Yang B, for sale,  and there could be quite a lot of investor interest in this 953 MW operation with its ability to offer lower wholesale prices than black coal operators in New South Wales. It’s half the age of Hazelwood.

Beyond the deep green flag waving, the key issue on the east coast is really not hard to see — the power market is bulging with capacity (with more to come in a short period through the requirements of the RET) and there is deep uncertainty about where supply is heading in terms of price, reliability and security.

In a properly planned environment, the Australian Energy Council CEO Matthew Warren points out, investors would already be well advanced in delivering the right mix of lower-emitting generation to replace Hazelwood’s 1,600 megawatt capacity. “Instead everyone is asking ‘what happens next?’ because there is no national plan.”

The result, Warren says, is “investment gridlock” and growing uncertainty for the business community and the mass market.

This perspective is reinforced by Mark Collette, head of energy markets at EnergyAustralia, who comments that the NEM “is in a very uncertain place” because there is not enough confidence to invest in refurbishing other old plants or “reliable, despatchable new plants.”

Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association, chimed in yesterday to urge the federal and State governments to use the Hazelwood decision as further impetus for development of a “national electricity blueprint.”

The NEM, Roberts adds, was established nearly 20 years ago “to eliminate the waste and political games of separate State systems” and governments need again to commit to co-ordinated action. “There can be a healthy debate about the size of the national renewable energy target but few would argue that a patchwork of State targets is efficient,” he says.

Not surprisingly, APPEA wants Victoria in particular to focus on developing a new electricity supply mix including both gas and renewables.  “With gas the only option for reliable back-up to intermittent renewable sources,” Roberts declares, ” Victoria’s ban on onshore gas development makes no environmental or energy policy sense.  This is especially true for the political moratorium on conventional gas developments.

I thought it interesting yesterday that a solemn Josh Frydenberg, federal Environment & Energy Minister, listed three key points in his media conference: first, looking after the Hazelwood workers and the Latrobe Valley community more generally, second energy security and third electricity costs.

And Tom Koutsantonis, South Australia’s Treasurer and Energy Minister, writing in an Adelaide newspaper, comments that “the NEM is extremely complex and will take time to adjust to the withdrawal of Hazelwood.”  Koutsantonis also notes that Engie has a contracted position in the market that it will need to cover and, he says hopefully, this may mean that “the nation’s most efficient gas generator (Pelican Point in SA), which is currently running at only 50 per cent of capacity, may be required to help cover that position.”  And, one adds, to help cover South Australia from the problems in to which it has plunged this year.

In passing, it is worth noting that Australian energy veteran Trevor St Baker has signalled that he could be interested in buying Hazelwood through his Sunset Power International business. Sunset acquired the languishing Vales Point black coal power station in the Hunter Valley from the New South Wales government last November. St Baker told a newspaper he thought half the Hazelwood units could be “kept in fairly good service.”

So ranting  about Hazelwood’s fate signalling the “end of coal” may be a bit misplaced. Or, to quote the Minerals Council of Australia yesterday, “brown coal should not be written off.”