The Queensland Audit Office’s Energy 2020 Financial Report has been making news (e.g. in the Brisbane Times), although not for the same reasons I think it’s important. It demonstrates, to me at least, that Queenslanders are worse off because the current Queensland Government rejected the previous government’s plan to offload the state’s energy assets as part of its Strong Choices program.
Let’s start with one of the facts reported by the QAO, that the state government’s renewable energy business CleanCo has written down the value of the relatively high cost Swanbank E gas power station to zero. Swanbank E is expected to lose money each year until it’s shutdown in 2036. This is because wholesale electricity prices have fallen with the growth of renewable energy sources, growth which has partly been driven by government subsidies.
We’ve known for some time that our National Electricity Market (NEM) isn’t sufficiently rewarding generators for maintaining reliable generation capacity, and we need to find a solution fast, or our rapidly expanding renewable energy generation capacity will render more fossil fuel-powered generators uneconomic too soon and threaten the reliability of our electricity supply. For more on the big challenge posed by renewables for Australia’s NEM, and possible solutions, check out the excellent webinar held by the Economic Society of Australia (QLD) last November:
Clearly, the rapid expansion of renewable energy is leading to some peculiar outcomes, as highlighted by the QAO in its report on p. 9:
Increased solar generation during the middle of the day has meant that, on occasion, supply for electricity is so much greater than demand that power generators have had to pay the market to take the electricity they generate. This is referred to as a ‘negative price event’.
With ever-growing renewable electricity supply and a reduction in electricity demand during the pandemic, there were several hundred negative price events in 2019-20 according to the QAO’s figure on p. 9.
Lower electricity prices, partly due to the growing presence of renewables, have reduced the profitability of state-owned generators and prompted asset write downs. The QAO report highlights the value of the Queensland Government’s energy assets is falling. I should note this is not a new revelation, but was revealed in annual reports last year (e.g. see Robert MacDonald’s excellent write up at InQueensland State’s power companies at a loss due to COVID and switch to renewables). CS Energy and Stanwell wrote down the value of their assets by 15-20% or over $1 billion in 2019-20 (see p. 8 of the QAO report). This was not solely due to COVID, as the QAO report makes clear, identifying “increased generation from renewable sources” as another contributing factor to the lower electricity prices which have reduced generator profitability. On its one page summary of the report, the QAO notes (on p. 1):
While the energy sector is still financially viable, its profits have declined significantly.
It’s a shame privatisation was an election issue in 2015 and the then Opposition led by now Premier Palaszczuk committed so strongly to public ownership of existing state assets, because it would have been good for Queensland taxpayers for the Government to have offloaded the energy assets back then. The Queensland Treasury was strongly convinced they weren’t worth holding on to, as I discussed in my 2018 book Beautiful One Day, Broke the Next and in this 2018 QEW post:
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