While carbon risk is a reality that every business needs to assess, the closure of Liddell Power Station and the selection of a mixture of energy sources as replacement capacity, are decisions which would be made based on changes in technology and falling underlying demand for energy, regardless of consideration of climate targets.
In a forthcoming paper, Tim Nelson and Tracey Dodd look at the changing nature of the electricity market and in particular, how that may play out in NSW, home of Liddell Power Station which AGL plans to close in 2022, adding to the list of ten coal fired power stations already closed since 2012, the last three of which have given less than a year’s notice of closure.
Interestingly, Nelson and Dodd argue that if climate change mitigation risk is not considered , replacing a coal fired power station may have been the right investment choice in the energy market of 2007, but a decade later, two factors have changed the landscape significantly.
Firstly, the most economic energy source is now wind generation with a long-run marginal cost of around $60 per MWh, making it 12% cheaper than black coal and 22% cheaper than brown coal. Secondly, underlying demand for energy is falling while peak demand, for example during heatwaves, remains steady or is marginally rising. These two factors together mean Australia needs a far more flexible solution than coal fired power provides.
They identify shortcomings in intermediate and peaking capacity, and an oversupply in baseload. The solution, they argue is a shift in investment which recognizes the logical growth of renewables as the least cost energy available and highly flexible capacity which can be switched on or off according to the more variable needs of the market given renewables aren’t always available.
Short-term that means open cycle gas turbines that can go from zero to full capacity in five minutes, longer term it’s likely to mean storage solutions like batteries and pumped hydro. Either way, our energy market is changing rapidly, and old technology is mismatched with the new market.
You can find out more about AGL’s plan to replace Liddell Power Station’s capacity here.