Brown coal generation increase ‘likely to continue’

Brown coal fired power generation has continued to increase under “changing fortunes” since the abolition of the carbon price last year, a market report has found.

According to a report by national consultancy firm pitt&sherry, brown coal generation has continued to rise steadily since July 2014, despite on overall annualised drop in the mix of power generation methods nationally.

While overall demand for electricity has continued to decline for the fourth year running, pitt&sherry analyst Dr Hugh Saddler said a range of market dynamics had improved brown coal’s price competitiveness.

Dr Saddler said with intermittent wind generation and high gas prices in South Australia, and the higher cost of black coal extraction in New South Wales, brown coal generation was better placed to sell electricity into these cross-border markets.

“The net exports to SA have been going up gradually. What’s happened there is gas is still the main source of generation which is sure to be one day overtaken by wind, but currently it’s relatively cheaper to send brown coal (produced electricity) over the inter-connector and push gas out of the market,” Dr Saddler said.

He said it was a trend that was “likely to continue” for the foreseeable future under the present government policy settings.

“Energy Australia appears to have steadily increased output from Yallourn W over the past year, with annual capacity factor rising from 61 per cent in the year to June 2014 to over 76 per cent in the year to January 2015,” Dr Saddle wrote.

According to the generation figures supplied by the Australian Energy Market Operator, overall Latrobe Valley power generation increased 6.47 per cent in the six months after the carbon price was scrapped.

While generation dropped at Loy Yang A from 8493 to 7627 gigawatt hours between the first and second halves of 2014, generation at Hazelwood and Loy Yang B increased 2.6 and 32.2 per cent respectively over the same period. 

However Dr Saddler cautioned against interpreting the trend as a more secure future for Latrobe Valley’s power generators.

“This is just reverting to the situation that prevailed before that carbon price came in,” he said.

“The nature of the brown coal extraction process is much cheaper, so the Latrobe Valley has a significant advantage against black coal generators and basically with the carbon price dropped, they are back to exploiting that dynamic again.

“But their position in the competitive market based on whatever price they can get is related to their fuel costs and operating costs.

“It’s the age of the power stations which is their biggest liability, and keeping their running costs down, that’s going to be the determining factor in staying competitive.”