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Australian power companies speed closure of coal-fired plants

Doubts grow over security of country's power supply

Loy Yang coal fired power station, operated by AGL Energy, in the state of Victoria. Australia relies on coal for more than half of its power generation.   © Reuters

SYDNEY -- Australian energy companies are accelerating their plans to shut coal-fired power plants, raising concerns among policymakers about possible disruptions to the country's power supply.

These moves may help Australia achieve its goal of carbon neutrality by 2050, but the federal government is alarmed by the trend, which it fears could raise energy prices and threaten supplies.

Recent announcements by two major Australian power companies sparked fresh debate over the grid's ability to handle the accelerating shift from coal to more intermittent renewable energy, and provoked warnings that shortfalls in the market could drive up electricity bills.

On Feb. 17, Australian energy giant Origin Energy said it will close its Eraring Power Station, the biggest coal-fired power plant in the country, in 2025, seven years ahead of schedule.

"The reality is the economics of coal-fired power stations are being put under increasing, unsustainable pressure by cleaner and lower cost generation, including solar, wind and batteries," Origin Energy Chief Executive Frank Calabria said in a statement. The plant supplies over 20% of the electricity consumed by New South Wales, where Sydney is located.

Australian energy giant Origin Energy said it will close its coal-fired Eraring Power Station, the biggest in the country, in 2025, seven years ahead of schedule.    © Reuters

Federal Energy Minister Angus Taylor was quick to criticize Origin, saying, "This decision is bitterly disappointing for all energy users." The proposed 2025 closure of the mammoth power plant, without any plan to build a new facility to fill the gap in supply to be created, would risk "higher prices ... and a less reliable grid," he said.

Coal accounted for 54.9% of Australia's total power output in the year through June 2020, according to the government. That share is down by around 20 points from a decade earlier, but still alarmingly high from the viewpoint of stemming harmful climate change.

Investors are becoming increasingly critical of the use of coal as more countries move toward a zero-carbon future. Power companies are under growing pressure to shift away from fossil fuels.

Origin's announcement came just a week after another Australian energy powerhouse, AGL Energy, announced on Feb. 10 an early shutdown of its two coal-fired power stations in New South Wales and Victoria, shortening the time table by eight years. AGL's Loy Yang A plant in Victoria, which will be the company's last remaining coal-fired plant, will now close by 2045.

As Australian energy companies have drawn criticism from environmental pressure groups calling for a quicker transition to zero emissions, Canadian and Australian investment funds have jointly made a bid to acquire AGL.

The funds made two buyout offers to AGL, on Feb. 19 and in early Mach. The proposals apparently included plans to spend 20 billion Australian dollars ($14 billion) to build a renewable power plant, as well as power storage facilities, to bring AGL's greenhouse gas emissions to net zero by 2035.

AGL rejected both offers, saying they undervalued the country's largest power producer. Prime Minister Scott Morrison has also expressed opposition to the acquisition. After the Canadian fund unveiled its first bid to buy the country's biggest greenhouse gas emitter so as to shut its coal plants early, Morrison said, "We need to ensure that our coal-fired generation of electricity runs to its life, because if it doesn't, electricity prices go up, they don't go down."

Australia's Prime Minister Scott Morrison has expressed opposition to a buyout offer from a Canadian fund that would hasten the shutdown of AGL's coal-fired power plants.   © Reuters

Morrison's government announced in October a plan for the country's transition to net zero carbon emissions. But it is not eager to take any radical action to wean the country off coal due to concerns about massive job losses in the country's important coal industry.

The government has yet to map out a clear policy to ensure a cleaner future for its energy sector. Such a blueprint is needed for Australia's energy producers to craft their own long-term business strategies.

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