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Worrying Numbers for Generator and Transmission Companies

Last week the Queensland Audit Office (QAO) published a report on the performance of its Energy entities. The report summarises the financial and risk results of the government owned Generators, Transmission and Distribution businesses and its Retailers.

The audit report focused on a few areas including:

  • the strength of each entities IT security
  • the financial performance
  • the profitability from the sector and it’s continuing decline.

It is noted as a whole, the sector still returns a profit, be it at lower levels, to the government shareholders. Some parts of the sector i.e. Generators and transmission are not performing very well.

The report also acknowledges that the energy sector is undergoing significant changes and there is a need for the system to adapt to continue to supply affordable and reliable energy.

At a high level, profits across the six entities are down 88% to only $204M. Returns to the government shareholders were down 54% to $1B however, $1.5B was returned to customers, an increase of 37% on the previous year.

Over the last 4 years the return from the transmission, distribution and retail entities have been dropping at a steady rate while generation was returning $600M – $800M profit to the shareholders.

2019-20 has seen a rapid drop in profits from the generator sector. In Queensland, the State Government controls 68% of the generation assets and as a result have been exposed to the low spot and contract prices in recent years. This has resulted in a net loss of $367M for the generators.

Low Electricity prices have also impacted the value of the Government assets with over $1B being written down across the Power Stations.

The largest write down was Stanwell at $720M or 19% of their assets followed by CS Energy writing down $353M in value and CleanCo writing down $35M which includes the relatively modern Swanbank E Gas fired combined cycle generator that now was zero value. Swanbank E has an effective life until 2036 so in reality CleanCo expects net losses from operating this asset.

With the Queensland Governments exposure to such a large coal fired generator fleet, the shift to renewables and the retirement of its coal assets are a key issue for the government over the next 26 years of planned coal retirements. The QAO plans to report to the government on how the energy entities are managing the transmission from coal to renewable energy.

As we eagerly await the government’s plan to transition to more renewable energy in the generation mix, the question needs to be asked, can the coal fleet survive for another 26 years?

The earliest retirement in Queensland is Callide B in 2027. If the losses seen this year continue and potential increase over the coming years, it does not look viable to continue operating the coal fired generators apart from providing the much-needed system security to the grid.

It is not just the Queensland Government owned assets that are affected by the subdued prices. AGL wrote down $2.68B value of its assets as their realisation of previously expensive PPA’s from the wind and the forecast long term down turn in market prices. .

AGL have recently revised their view of the market where they previously believed the current downturn in prices would be short lived and prices would return to historic levels as a signal for new generation investment. AGL have stated they expect a sustained and material reduction in the prices of power and renewable energy certificates. Of the $2.68B write down, $1.92B was attributed to onerous wind farm contracts signed between 2006 and 2012. Wholesale prices and renewable energy certificates were trading at levels, much higher than today and into the future. Adding to the write down numbers, environmental remediation of site resulted in an extra $1.11B in cost and impairment of the thermal station added just over $1B.