Price impacts of the Hazelwood Coal Power Plant closure

Image: Hazelwood power plant from the air, by Mriya, CC BY-SA 3.0 , via Wikimedia Commons.

/ Better markets

The energy transition around the world is happening at a much faster pace than most had anticipated. This faster transition requres regulators to encourage investment by providing regulatory certainty and managing energy systems with an ever-increasing penetration of variable renewable energy. This research aims to provide a measure of the economic cost of regulators' failure to anticipate the impact of the energy transition. We estimate the price impacts of the closure of Hazelwood, a large brown coal power plant (1600 MW) in Victoria. Hazelwood, with an approximate 20% market share in the Victorian National Electricity Market (NEM) region, ceased operating in April 2017. The owners provided less than 5 months' notice. This event led to a rule change requiring a 3-year notice of closure from operators.

Understanding the market impact of the exit of large coal power plants is important from the perspective of investors and the market operator. Our estimates also allow us to measure the costs in terms of the accumulated increase in prices multiplied by the respective quantities of the failure of regulators to have an exit mechanism in place prior to the closure. Moreover, the more significant increase in solar generation from 2018 has further undermined the economics of coal generation (Gonçalves and Menezes, 2022), which raises questions about the effectiveness of the 3-year closure rule. The Energy Security Board is working to ensure resource adequacy given that coal will exit the market faster than anticipated (ESB, 2021). There has also been more recent announcements about the early closure of other coal power plants and the explosion of Unit C4 at the Callide power plant in Queensland in May 2021.

Learn more

The results of this research are available in the paper “Market-Wide Impact of Renewables on Electricity Price in Australia” (November 2021).

Project members

Our collaborators

Associate Professor Ricardo Gonçalves, Catolica Porto Business School

Our AIBE team

Professor Flavio Menezes

Professor Flavio Menezes

Director and Research Lead (Energy Futures and Better Markets)
Australian Institute for Business and Economics