According to a new report by energy and environmental market analysts, RepuTex, Australia’s large-scale renewable generation is likely to be 40 per cent lower in 2020 if the repeal of the carbon price laws and revisions to the Renewable Energy Target (RET) by the conservative Liberal-National government go ahead.
At the same time the RepuTex report said the resulting market conditions were likely to bring an increase in black coal power generation.
RepuTex analysed the impact of repealing the Carbon Price Mechanism (CPM) and the introduction of a reduced RET of 20 per cent by 2020, down from a fixed target of 41,000GWh by 2020, on the National Electricity Market (NEM).
The findings indicate that an ill wind is blowing for renewable energy generation.
According to RepuTex, should both policy changes be implemented, large-scale renewable generation in 2020 would fall from 41,000GWh under the existing Large-scale Renewable Energy Target (LRET), to 24,600GWh, a reduction of 40 per cent.
While growth in wind development is forecast to fall, black coal fired generation would benefit from the change in policy, increasing output by nine per cent, or 13GWh, by 2020 if market conditions return to pre-carbon price levels.
However, RepuTex said despite likely gains for fossil fuel generators, analysis indicated that relief may only be temporary, with large-scale renewable energy likely to continue to experience cost reductions.
It also said the government’s new ‘baseline and credit’ mechanism, the Direct Action Plan, may further dampen the electricity demand outlook for coal generation and place ongoing pressure on profit margins.
RepuTex Head of Research, Bret Harper, said the repeal of the carbon price and the reduced RET would significantly change dynamics in the NEM, with black coal generators able to capitalise on lower competition to increase generation and re-gain ground lost to lower carbon generators such as gas, hydro and renewables over recent years.
“Since the introduction of the LRET and the carbon price, intermittent renewables such as solar and wind, which supply wholesale energy at very low prices, have forced fossil fuel generators to cut the price of their offers to ensure participation in the market.
“This has lowered fossil fuel generator profits and forced some generators to downscale, with virtually all recent shutdowns occurring from fossil fuel power”
“With the carbon tax likely to be repealed, this will enable coal-fired generators to better compete against gas and hydro, eventually reclaiming much of the generation lost to cleaner fuels since the introduction of the CPM” said Mr Harper.
“The final design of the government’s Direct Action Plan will be critical for coal generators, with potential for emissions baselines and penalties to curb growth prospects, while large-scale efforts to improve energy efficiency via the Emissions Reduction Fund will spell trouble for coal generators if electricity demand continues to decline and places further pressure on profit margins” said Mr Harper.
According to RepuTex, while the CPM repeal will be a short term gain for coal generation, the long term trend for coal output is still dependent on the ambition of the RET and how much more renewable capacity is added to the wholesale market.
“Should the LRET be reduced, we would see fewer new on-shore wind energy projects, resulting in less supply of renewable energy, and less competition from new large-scale renewable development”
“Subsequently the downward pressure of wind on wholesale electricity prices will slow, which is welcome news for incumbent black coal generators, which have experienced large losses due to an oversupplied electricity market” said Mr Harper.
“Without additional wind capacity, idle coal-fired units will quickly take up any recovery in grid demand expected over the next five years” he said.
The government’s Direct Action Plan-Emissions Reduction Fund White Paper is scheduled for release this month, while the government’s Renewable Energy Target Review expert panel will report to the Prime Minister by mid-year.
