"Electricity market projections have consistently suggested that if Liddell closed without replacement supply would be tight around 2022, with higher prices and lower reliability likely. Projections also showed that if the Commonwealth, States, energy market authorities and suppliers got their act together the system could make the transition and put new capacity in place. In a competitive electricity market, a looming gap in supply should be an opportunity for existing and new players to grab.
"Over the more than four years since AGL announced Liddell's initial closure date, Australia has made some progress – the Finkel Review reforms have been mostly implemented, the Integrated System Plan is bringing new strategic thinking, and the Retailer Reliability Obligation offers a light-touch encouragement for competitive dispatchable capacity. But many more reforms remain in progress, and we have not resolved the fundamental policy uncertainties that make investment riskier, particularly around the future form and ambition of climate policy. Indeed, we've worsened the uncertainty with well-intentioned direct interventions from every level of government and threats of divestiture.
"Beyond policy, we've seen increasing concern about the reliability of other ageing generators, and drought is constraining output from hydro. We can expect hotter summers to put the grid under more strain, even without extraordinary heatwaves like that currently affecting Europe. Deferring the closure of Liddell and Torrens by a year gives the market a little more breathing space to weather these conditions and get replacement assets into operation. This is the right decision by AGL, and will come at a cost to them.
"The breathing space is brief, however. These old plants are not great guarantors of reliability – they will remain at risk of outage. And more ageing generators will announce their closure in coming years. As the Commonwealth considers its long-term emissions reduction strategy and the states pursue their net zero emissions goals, we cannot afford to waste time. Reforms like the Wholesale Demand Response rule change need to be bedded down. Big decisions about major transmission options need to be made in a timely way in the long-term interest of all energy users. And governments need to work together to deliver predictable, investable and efficient policy on energy and emissions.
"If we persist with an uncoordinated patchwork of intervention and inaction, the electricity market will become ever more dependent on clapped-out clunkers. We haven’t done better, but we still can," Mr Willox said.
Media enquiries: Tony Melville – 0419 190 347