Why the shutdown of AGL’s coal-fired plants will probably happen even sooner than power giant says

When AGL, Australia's biggest electricity generator, announced plans on Thursday to accelerate the timetable to close its two largest coal-fired power plants, environmental groups complained the pace wasn't fast enough.

Out would go Bayswater, AGL's 2640-megawatt black coal-fired power plant in New South Wales's Hunter Valley, between 2030 and 2033, rather than 2035 as previously flagged. And by 2045, the 2210MW Loy Yang A brown coal-fired station in Victoria would follow, compared with a 2048 schedule, the company said.

That at least was AGL's objective, Graeme Hunt, the company's chief executive told investors, adding with a flourish: "the path to net zero [emissions] will be the defining challenge of our era. Companies that don't adapt, that don't innovate, and don't set themselves on this path will be left behind".

Greenpeace Australia dismissed the new dates as a "token effort", noting the two plants at current pollution rates add about 35m tonnes of CO2 yearly, or about 7% of the nation's total. The Australasian Centre for Corporate Responsibility said the updated plan was "next to meaningless for these crumbling assets" given Bayswater will be 48 years old by 2033 and in 2045, Loy Yang A will be 61 years old".

The latter point was perhaps the most germaine. The Australian Energy Market Operator is already preparing scenarios for all brown coal plants and two-thirds of black coal ones to disappear from the grid by 2032.

That's about a decade earlier than AGL is now forecasting for Loy Yang A.

"[Thursday] will not be the last time the closure of a fossil fuel generator is brought forward," said Kane Thornton, chief executive of the Clean Energy Council, which counts AGL among its almost 1,000 members.

"If you look at the rate at which renewables are coming into the market, if you look at the rate at which big batteries are being deployed and the commitments that are being made in the projects being committed to, the pace of change is just accelerating." Thornton said.

Data released a fortnight ago by Aemo underscored the woes facing AGL - which by 30 June plans to split into a generator arm Accel Energy and a retailing one, AGL Australia - and other big fossil-dominated generators like EnergyAustralia and Origin Energy.

Gas and coal prices are being pushed higher by global supply constraints and rising demand, while costs of wind and solar farms are falling and their energy source is basically free. Plant profitability isn't helped, either, by 3m households with solar panels generating their own power, particularly during the middle of the day.

As Aemo noted, Victoria's spot prices in the December quarter were on average negative between 09.25 and 14.20. Between 08.00 and 16.30, they averaged just 10 cents per MW-hour.

EnergyAustralia last year brought forward the planned closure of its Mt Piper coal-fired power plant near Lithgow in NSW by at least three years, while its Yallourn plant in Victoria will now shut in 2028 rather than 2032. Origin Energy, meanwhile, says the first of the units at its Eraring plant will shut in NSW by 2030.

Dylan McConnell, an energy expert at the University of Melbourne said Aemo's draft integrated system plan has various scenarios based on emissions goals. The most ambitious, assuming a trajectory that is in line with keeping global warming to 1.5C, has the first of AGL's Loy Yang A's units closing by 2027 and all of it by 2029, he says.

"It's a bit of a mismatch," McConnell says. "You have this sort of market approach and then you have this planning approach, and they just don't line up."

One reason is Aemo's modelling assumes a carbon budget. "In the real world, there isn't a carbon price or any financial penalty for that," he says. Not yet, at least.

Another challenge is that while renewables have been booming, the pace of growth, particularly for new windfarms, has slowed sharply, in part because of planning uncertainties, McConnell says.

Head of the Victoria Energy Policy Centre, Bruce Mountain, agrees there's every likelihood loss-making coal-fired power plants will drop out of the market faster than companies are saying publicly.

AGL's Bayswater, for instance, will lose its low-cost coal supplies from about 2024, which will then undermine its role as one of the more profitable plants. A 2030 closure date, if that's what happens, will be challenging for NSW, Mountain says.

"The NSW government needs to get another, call it 4000-5000MW of wind and solar capacity operational and producing by [2030], and a very good deal likely of storage capacity," he says.

NSW seems committed to implement its electricity infrastructure roadmap "but there isn't time to lose", Mountain says. Victoria is also stepping up its support for new generation capacity while Queensland "remains the real laggard".

Aemo, meanwhile, is also forecasting demand to almost double by 2050 to 330 terawatt-hours a year, from 180 TWh now, particularly as cars switch from petrol and diesel to electricity.

To meet that demand and cope with plant closures, the current pipeline of proposed generation and storage capacity in the NEM stands at 138 gigawatts (GW), or more than double today's capacity of 59GW. Renewables account for 86% of proposed projects, Aemo says.

The challenges facing the power sector will only grow, though, if hopes for a hydrogen export sector are realised, McConnell said

"The growth in electricity for that is really quite phenomenal," he says. "So there's a bit of a disconnect between what the market is doing or saying versus what the expectations are."