Australian Economy

Alinta CEO says shutting coal is ‘economic suicide’

Coal is the dominant source of Australia’s electricity generation, accounting for about two-thirds. Buts its role is falling amid a wave of new zero-emission generation and environmental advocacy.

Alinta Energy owns the Loy Yang B coal power station, however, Mr Dimery said he was agnostic on the energy source.

Not the ‘coal guy’

“I don’t want to come across as the coal guy. I want to come across as the guy quite frankly that is interested in keeping energy affordable and the lights on,” Mr Dimery told The Australian Financial Review.

“I’m not a guy trying to hang onto coal for any longer than we need to.”

The energy crisis has reframed the attitude of some investors towards coal, but opposition from environmental advocates remains strong.

There is also limited political will to boost coal after an election in which a wave of candidates promised action to curb the fossil fuel if elected.

Mr Dimery said Australia’s energy crunch was evidence of poor planning, including the Victorian government which had a decade-long moratorium on all onshore gas exploration.

He said Australian wholesale electricity prices had surged because of the lack of investment in generation.

Retail pain

The spike in wholesale prices has pushed a clutch of small energy retailers to the brink. Mr Dimery said he had received up to eight calls in the past week from smaller power retailers seeking to offload their retail customers because they faced financial trouble.

The energy crisis is the first big test of the new Labor government, which convened a meeting with state energy ministers on Wednesday.

Mr Dimery said the only short-term fix was to restore coal capacity. Even though about 25 per cent of the country’s traditional form of electricity generation was offline, he rejected the suggestion that renewables could offer a faster solution.

“The only lever, the only short-term fix, is that we get those coal-fired power stations up and operating and back into the market. That will take pressure off gas which will also help the price of gas. That’s the only short-term solution,” he said.

Mr Dimery highlighted recent events in South Australia as evidence that fossil fuels were needed.

“Last Wednesday at 6.15pm, South Australia, which has enough renewables to supply the entire state, it was producing 1 megawatt. A single megawatt,” Mr Dimery said.

“At the same time there was very little renewable generation going on in Victoria either, so it wouldn’t have mattered if you doubled the capacity of the transmission, and it wouldn’t have mattered if you quadrupled the capacity of intermittent generation, without coal and gas the lights would have gone out in South Australia, that is a fact. That is undisputable.”

Several of Australia’s largest coal-powered generators are scheduled to run at reduced capacity through much of winter, straining the country’s energy market.

Concerns were heightened on Tuesday when the Australian Energy Market Operator warned of “potential ongoing implications for reliability” in the National Electricity Market this winter because of the recent “challenges” with the availability of fuel.

Under mounting pressure, the industry has again turned to the capacity mechanism, which is considered a leading contender to ease the country’s energy crisis that threatens to exacerbate cost of living concerns for households and the viability of some businesses.

Capacity mechanism option

A capacity mechanism that rewarded power producers for having capacity available to generate power, not just for the power they produced, was discussed on Wednesday at the meeting of federal and state energy ministers.

The Energy Security Board last year included the capacity mechanism as part of its proposed post-2025 redesign of the National Electricity Market, but several state governments have voiced opposition to the plan.

The plan, however, is contentious as it could prop up the economics of coal power plants in the future depending on its design. Such is the opposition, several states, including Victoria, have stated they’re against any capacity mechanism that includes coal.

Mr Dimery said excluding coal in markets such as Victoria would leave the capacity market ineffective.

“Coal has to be included in a capacity mechanism. Let’s just deal with reality and practicalities. Take Victoria, if you exclude coal, then you are excluding Loy Yang A, Loy Yang B and Yallourn, what’s left? If they [coal generators] aren’t included, then you can’t punish them when they aren’t there,” he said.

“You can exclude three quarters of the market, it won’t be viable.”

Mr Dimery said he predicted “exactly the same problem [as occurred with gas in Victoria] being repeated with coal-fired power stations right now” and blamed activist investors and cost factors for driving the transition too quickly.

“There is a cacophony of things happening at once, You’ve got activist shareholders against publicly listed companies really pushing hard around ESG. Wanting them to reduce emissions,” he said.

“If you wind the clock back just over 12 to 18 months ago, we were having record high prices. What you had, from a commercial sense, was shareholders telling you ‘you need to get out of this’.

“It is not the right environment for energy companies to be stepping up and saying, ‘we really need to double down on operations and maintenance and capex costs for power stations that, quite frankly, we’re announcing we are going to bring forward the retirement of’. What is exacerbating today’s problem is the reliability of those same assets.”

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