Hazelwood closure likely to be followed by others as grid is ‘de-carbonised’ | Businesses need to be proactive and act swiftly rather than becoming price takers | Ongoing volatility and higher prices can be mitigated by energy efficiency measures
We are encouraging businesses to urgently review and monitor their energy procurement needs after the recent announcement by Engie confirming the closure of its Hazelwood coal-fired power plant in Victoria’s Latrobe Valley in March 2017.
Further, we believe that businesses should also be focussing on ‘behind the meter’ energy efficiency and consumption optimisation measures to mitigate the effects of what is likely to be ongoing price volatility, and with further such closures likely.
Commenting on the impending closure, our Trading & Pricing Director David Rylah said, “While markets have largely factored in the effect of the Hazelwood closure, there will no doubt be ongoing price volatility as the market absorbs the full implications of the closure.
“We have seen Victorian wholesale contract prices for 2017, 2018 and 2019 increase 24% since late September, closing on Friday above $63/MWh. We are not expecting this to reverse in the near term, rather, we anticipate further erosion of the validity period of offers to end users as we progress towards the end of the year.
“In this context, the best strategy is to proactively review, monitor and manage your energy procurement needs and act swiftly in order to obtain the best price, rather than be a price taker.”
“There are also a number of measures that businesses can take in order increase energy efficiency and lower their costs in this regard. With technology now more advanced, payback periods shortening and interest rates at an all-time low, there is no excuse not to act.”
The Hazelwood power station is Victoria’s second largest by capacity, currently delivering around 22% of the state’s coal-fired generation capacity, and 6% of that of Victoria, Queensland and New South Wales combined. While the Australian Energy Market Operator has provided assurances that the any baseload power supply shortfall from the closure of Hazelwood will be filled by other generators across the grid, they may leverage this shortfall to obtain higher prices.
David Rylah added, “The closure of Hazelwood is part of the ongoing de-carbonisation of the grid and is likely to be followed by others – this is the new norm.”
“While there are lower carbon-intensive energy supply sources coming on line to replace the ageing and carbon-intensive coal-fired generators, how quickly and efficiently they can do so remains to be seen.”
“While the ripple effect of this announcement will play out over time, possibly 2 to 5 years, energy users have tools at their disposal to act immediately to optimise both consumption and demand to reduce their exposure to the price rises. If there has ever been a call to action it is now”.