Transition cost warning
Coal power exit may have to wait: Origin
RISING household energy bills this decade could spark a backlash against the transition to renewables, Origin Energy said, while warning the exit of coal power may need to be delayed to safeguard the grid.
“Delivering the energy transition, given the scale of investment required, will undoubtedly create upwards pressure on energy bills,” Origin CEO Frank Calabria told a CEDA forum on Tuesday. “I fear rising energy prices could erode community support for the transition – a task that can only be delivered with co-ordination and commitment across governments, the private sector, market operators, regulators and communities.”
Origin, juggling an $18.4bn takeover bid from Brookfield and EIG, said the industry must be upfront over the cost of the move to green energy.
“We must be honest about the likely impact on bills over the short to medium term to reduce bill shock,” Mr Calabria said. “We must consider what levers are available to ease cost inputs right across energy bills, while implementing additional support for those in our community least able to pay.”
Both Treasury and energy regulators have warned of a 56 per cent jump in power prices in the next two years, while Labor will intervene in Australia’s domestic gas market before Christmas to calm prices.
Gas consumers also face a big financial hit, with tariffs expected to increase by 20 per cent this year and in 2023-24 due to an ongoing supply crunch on the nation’s east coast and near-record LNG prices filtering through to the local market following Russia’s invasion of Ukraine. Soaring energy inflation looks set to sink the Albanese government’s election promise for a $275 cut to power bills by 2025.
Australia also now needs to consider delaying the shutdown of major coal plants to ensure the grid remains stable and reliable, Origin warned.
Origin itself has accelerated the closure of the nation’s largest coal power station, NSW’S Eraring, by up to seven years to August 2025 to meet green goals and focus on clean energy generation.
However, Mr Calabria said the scale of coal exits out through 2035 may require a reversal of some retirements should insufficient replacement supplies be in place.
“Coal closure time frames have accelerated this year with some 17GW expected to exit the market by 2035, which is important to achieve the nation’s emissions targets, however consideration must be given to the cumulative impact of these closures on the market alongside the prospect of delays to new infrastructure coming online,” he said. “There may be a requirement to delay the exit of some of these coal units, and only for as long as needed, to maintain the security and reliability of the national electricity market.”
A proposed capacity mechanism would pay companies for guaranteeing standby supply, avoiding blackouts and helping drive investment in new generation for the grid. However, the mechanism was sidelined by energy ministers at a September meeting, raising doubts over its progress.
“These policies will need to be flexible, with consideration given to commercial factors like compensation for costs incurred in running uneconomic plants, as well as the need to retain coal plant workers, secure coal supply contracts, and many other related matters,” Mr Calabria said.