The impact of the early closure of Yallourn power station on the Victorian electricity system

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RepuTex has been engaged by Environment Victoria to analyse the potential impact of the early retirement of the Yallourn power station on Victorian market shape and wholesale electricity prices, modelling the phased closure of Yallourn in line with scheduled timelines (2029-32); versus the ‘earliest’ retirement of Yallourn in 2023 (three-year notice period).

Scenarios are intended to inform how the Victorian market could prepare for any early retirement of the Yallourn power station, or sudden unavailability of Victorian brown coal units, and the options available to policymakers on a short lead time of three years.

Key findings include:

  • Under the Reference Case forecast, Victoria is modelled to have a tight reserve condition in 2019-20 and is expected to be reliant on import capacity during future ‘one-in-two year’ maximum demand events.
  • During a more severe ‘one-in-10 year’ event, Victoria could need all brown coal units available to ensure system reliability (with an average of two brown coal units modelled to normally be unavailable under such events).
  • Under the Alternative Case, a combination of large- and small-scale renewable energy (an additional 2.6 and 0.3 GW, respectively), along with ‘big battery’ storage (0.6 GW), small ‘virtual power plants’ storage (0.5 GW), and other demand-side participation (0.2 GW), is shown to provide the available resources necessary to compensate for the absence of Yallourn by the summer of 2023-24.
  • This includes both enough annual energy to mitigate wholesale prices rises and maintain regional power reliability though heatwaves and other extreme events to prevent ‘blackouts’. Additionally, this scale-up of controllable Victorian energy resources is likely to reduce reliance on other states to provide power during extreme events.
  • Under this scenario, modelling indicates that with effective planning the Victorian market can compensate for the closure of Yallourn as early as April 2023. Even if Yallourn continues to operate beyond this date, these new measures (large- and small- scale renewable energy capacity, energy storage and interconnector upgrades) would position Victoria to mitigate future capacity failures as existing facilities age.
  • Investment in replacement electricity supply under the Alternative Case scenario is modelled to reduce wholesale power prices compared to the Reference Case forecast. Medium-term wholesale electricity prices are modelled to decline from over $100 per MWh in 2018-19, toward $70 per MWh by 2022, underpinned by a lower dependence on gas generation, the accelerated installation of small-scale rooftop solar PV and distributed energy storage, along with the continued uptake of large-scale renewable energy projects over the next three years.

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