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Resource-rich Australia grapples with coal power shortage

Low-carbon transition leaves fossil-fuel plants underinvested

Fuel shortages and breakdowns have plagued coal-fired power plants in eastern Australia. (Photo by Fumi Matsumoto)

SYDNEY -- Australia, a major supplier of coal and natural gas to the rest of the world, is itself facing a power crisis as malfunctions and fuel supply problems dog aging coal-fired plants that have taken a back seat to investment in renewable energy.

The shortage has been exacerbated by a wave of demand for heating in June amid a record early-winter cold snap. The Australian Energy Market Operator in mid-June shut down eastern Australia's electricity spot market for the first time since its establishment in 1998, only partly reopening it this Thursday.

But supply issues had loomed on the horizon months earlier. In March, severe flooding in the eastern part of the country hit coal shipments. That has reduced the supply of fuel to the Eraring power station, which generates a quarter of the electricity used by the state of New South Wales, home to Sydney.

"The recent material underdelivery of coal to Eraring results in lower output from the plant, additional replacement coal purchases at significantly higher prices, and is being exacerbated by coal delivery constraints via rail," operator Origin Energy said earlier this month.

Technical difficulties at coal-fired plants have contributed to the power shortage. A unit at a major power station in Victoria, of which Melbourne is the capital, went offline in April because of an electrical fault with the generator and is not expected to return to service until September.

Many of Australia's coal power facilities are three decades old or more, needing extensive maintenance and inspections to keep them running. But cuts to coal power capacity are needed to meet the government's goal of net-zero greenhouse gas emissions by 2050, and coal has fallen below renewable energy on power companies' priority lists.

The Australian Financial Review said in early June that "nearly 25% of coal capacity remains offline," citing data from AEMO. This could equate to more than 10% of overall generating capacity, based on government materials showing that coal accounted for more than half of power generation in the fiscal year through June 2020.

The squeeze forced AEMO to suspend eastern Australia's electricity spot market on June 15, saying that "it has become impossible to continue operating the spot market while ensuring a secure and reliable supply of electricity for consumers."

Before the halt, AEMO had imposed a cap of 300 Australian dollars ($208) per megawatt-hour in certain states after wholesale prices climbed above a key threshold. Some power plant operators responded by taking supply off the grid, unable to run profitably with coal and natural gas prices having soared since Russia invaded Ukraine in February.

To prevent a supply-demand mismatch from causing large-scale outages, AEMO decided to halt spot trading. During the suspension, power companies are required to sell to energy retailers at prices predetermined by AEMO, which could be compensated for the difference if supply costs exceed the prices. 

AEMO partly lifted the suspension of the spot market Thursday and plans a full reopening if supply looks likely to remain stable.

Chris Bowen, minister for climate change and energy, has noted that "there remain risks in the system."

"In the immediate term, I think that it is about making sure that energy, any energy security caveats in federal and state legislation, are being used to ensure the security of supply," said energy market expert Liam Wagner, an associate professor at the Center for Food and Resources at the University of Adelaide. "That is paramount to everything else."

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