High coal price equals High energy price

3 Dec 2018

Bloomberg New Energy Finance (BNEF) has released research showing that current high energy costs are due to the high price of coal, and not because of renewable energy.

The new analysis from BNEF confirms that thermal coal power prices have doubled in two years, and in turn caused a doubling in the price of coal capacity in the NEM. This can be attributed to demand for high-quality Australian coal, and the unexpected closure of Hazelwood at around the same time (which forced other generators to lift their electricity output and dragging coal consumption above contracted supply levels to ensure the lights stay on).

“Black coal generators are producing more power following the closure of several brown coal plants in 2016 and 2017, forcing operators to source more fuel at spot market prices that have risen ‘sharply’,” the report’s lead author Ali Ashgar said. The result of this unexpected jump in thermal coal prices “is that they have to charge more for their power”.

The benchmark thermal coal price rose to a six-year high of $US120 ($164) a tonne in the July quarter before falling to around $US117 per tonne in the September quarter.

As black coal makes up around 54% of the east coast energy mix, it’s a simple assumption that high coal prices would then force up the price of thermal coal energy production.

“Since black coal makes up such a large portion of the energy mix, this change in the cost of coal generation is perhaps the most important reason behind the 60 to 100 per cent hike in average wholesale power prices over the last two years,” Mr Ashgar said.

Pricing for coal is so high that it’s cheaper to build a new solar or wind plant than it is to generate export-linked coal in an existing, fully depreciated, coal plant.

“The current wave of solar and wind farms under construction should therefore put downward pressure on power prices when they become operational in 2019-20 and should also soften the impact of international fuel prices on domestic power.

“Wind and solar are the electricity market’s hedge against exposure to rising international coal or gas prices.”