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Surging renewables, COVID-19 pile more pressure on coal

Australia’s renewable energy output is on track to post its sharpest rise on record in the next two years, driving down power prices and intensifying the prospect of early closures of coal-fired power plants across the country.

Independent modelling from global energy giant Schneider Electric, the nation’s largest corporate energy adviser, forecasts that wind, solar and hydro power’s share of the main grid will surge as much as 6 percentage points this year – from 21 to 27 per cent – and could exceed 30 per cent by the end of 2021.

Schneider’s advice – provided to some of the country’s top miners, manufacturers and retailers – foreshadows a “massive amount of growth based on current pipelines”. The faster projected growth in renewable output, which has rarely exceeded 3 per cent a year, comes as up to 3.5 gigawatts of new renewable capacity prepares to enter the grid.

Experts and analysts say the surge in renewable energy will drive down daytime spot prices and pile greater-than-expected pressure on ageing coal-fired power plants, which are far more expensive to run.

UBS utilities analyst Tom Allen said the coronavirus crisis was exacerbating the impact of rising renewables on coal power plants as low demand and low power prices forced them to scale back their output where possible.

“COVID-19 is accelerating and exacerbating the impact of lower demand on wholesale electricity prices,” Mr Allen said. “If you look through that, it supports the case for early closure of coal-fired power plants.”

Due to their lack of ability to ramp up and down, as well as aggressive state-based renewable energy targets, Mr Allen said Victoria’s Yallourn coal-fired power plant and Queensland’s Gladstone plant were at the greatest risk of closing sooner than expected, as early as 2025.

Schneider Electric energy markets director Lisa Zembrodt said renewable energy output would “continue to squeeze out coal- and gas-fired generation”.

“The variable cost to harness the sun or wind to produce electricity is a fraction of the cost to burn coal or gas to do the same,” she said. “That’s why growing renewable output puts pressure on the average wholesale electricity price.”

Ms Zembrodt was telling clients that while low energy prices created risk for investment in new power projects, renewable energy was “the most financially viable in the long term”.

Coronavirus travel restrictions are forecast to slash global energy demand by 6 per cent this year, seven times more than during the global financial crisis, according to the International Energy Agency. Coal is anticipated to bear the brunt with an 8 per cent drop, while renewable energy’s very low operating costs had enabled it to expand market share.

EnergyAustralia – one of the largest power providers and the owner of Yallourn – said ensuring the market was equipped to handle the exit of coal power plants in the coming years and filling the gap with affordable and reliable power “isn’t engineering, it’s planning”.

“In the next two decades, around a dozen coal-fired power stations that currently provide more than half of the National Electricity Market’s demand will close,” EnergyAustralia executive Liz Westcott said.

Renewables were the obvious substitute, she said, “but we still need other technologies” such as hydro, large-scale batteries and gas for cloudy and windless days when conditions for renewables were unfavourable.

AGL, which operates coal, gas and renewable energy generators, said the “long-term drivers” for investment in renewables, including customer-driven demand, were unchanged by the economic impact of the coronavirus downturn.

The Clean Energy Council, a renewable energy group, said investors had given the green light to an unprecedented number of new renewable energy projects in 2017-18, many of which were now approaching completion. Its chief executive, Kane Thornton, called on policymakers to “plan and prepare” for the shift.

“Whether that’s investing in the grid, reforming the energy market, or we support those communities that are going to be impacted – it’s a reminder that we really need to be much more strategic and plan for the inevitable transition that is now underway.”

The Australian Energy Market Operator said that within five years, the main grid could accommodate far more energy than previously thought possible – up to 75 per cent at peak times.
NSW Energy Minister Matt Kean said private investment in renewables “remains strong” with about 18.4 gigawatts of large-scale renewable projects in NSW either approved or progressing through our planning system.

“These projects represent about $24.7 billion in private sector investment,” Mr Kean said.
Victorian Energy Minister Lily D’Ambrosio said the state was investing an “unprecedented amount in renewable projects” and was on track to reach its 25 per cent renewable target by the end of the year.

The falling cost of renewables is paving the way for private investment into large scale renewable projects. The International Renewable Energy Agency’s Power Generation report for 2019, released this week, found the average cost of electricity from large scale solar plants in Australia fell by 78 per cent between 2010 and 2019.

Source: Sydney Morning Herald