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Energy experts say $70 per megawatt hour wholesale electricity price pledge is a ‘pipe dream’

Experts have branded the government’s promise that the wholesale electricity price will fall to $70 per megawatt hour by 2021 as a “pipe dream” with the forward curve showing prices of over $100 in some jurisdictions.

Following the re-election of the Coalition in May 2019, Federal Energy Minister Angus Taylor pledged that wholesale power prices would drop to $70 per Mwh.

 

14 percent upward jump in Q2

distribution infrastructureBut the reality of the situation is that a slower rollout of renewable energy projects, high gas and coal prices and investment uncertainty has contributed to a rise in the wholesale electricity price this year, with a 14 percent jump in Q2 alone, according to JP Morgan. 

The analyst firm says that the average wholesale electricity price is now about $95 per megawatt hour. Energy experts said wholesale prices would struggle to get below $80 per megawatt hour and could top $100 per megawatt hour in NSW and Victoria.

Energy Users Association of Australia Chief Executive Andrew Richards was quoted in the Australian Financial Review as saying that the Association did not know how the Federal Government “with very limited levers” can make the $70 pledge become reality.

 

Forward wholesale electricity price curve showing $100+ per Mwh

Grattan Institute energy program director Tony Wood said “We don’t see them coming down much below $80 a megawatt hour and the forward curve in some jurisdictions is showing above $100.” 

Some investors had also been scared off by the federal government intervention in the energy market, including the purchase of and planned expansion of Snowy 2.0.

“All of these things add risk to non-government investors,” said Mr Wood.

The slowdown of large-scale renewable energy projects from connecting to the grid was also having an impact on wholesale prices.

This is due to both inaction in terms of creating infrastructure as well as tougher new reliability standards.

All these things are forcing wholesale prices up, also pointing out that forward prices are higher now than what they were a year ago.

 

Wholesale electricity price will surge after Liddell closure in 2022

LiddellEven if wholesale prices do come down in the next few years, they would most likely surge back up when AGL Energy closes its Liddell coal-fired power station in 2022.

“Wholesale energy prices should come off where they are now – because in some ways it’s been an artificial hiatus – but $70 a megawatt hour is hard to see,” Mr Wood said.

Energy generators are calling on the government to have a rethink on Energy Policy. 

Energy Australia chief executive Catherine Tanna called for a “reset on national energy policy”.

A spokesman for the Australian Energy Council said wholesale prices were expected to fall as new supply entered the market to replace capacity lost in 2016 and 2017.

But this new capacity had been delayed by a range of factors including higher world coal and LNG prices as well as major maintenance required at a unit at Loy Yang A power station in the Latrobe Valley in Victoria.

Loy Yang A is now expected to be out of action until December, putting a further squeeze on prices.

 

Coal generators make hay while the sun shines

Meanwhile, coal-fired power generators have boosted their profitability with the higher wholesale prices with a push to run existing facilities for longer.

In fact, EnergyAustralia announced on Monday it would upgrade its Mt Piper coal power generator in NSW as part of a plan to secure the plant’s future for another 24 years.

In the same breath, it denied that it was planning to shut down its Yallourn coal-fired power station earlier than the planned 2032 closure.

The Morrison government has focused on bringing down electricity prices for consumers through policies such as the default market offer.

But persistently high wholesale prices will inevitably flow through to high retail costs for customers as businesses seek to offset increased costs.

 

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Ben Wallington: ben@leadingedgeenergy.com.au and 

Ewen Beard: ewen@leadingedgeenergy.com.au 

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