We are pleased to present Aurora’s new strategic insight report, The economics and potential timings of coal closures in the NEM. The report presents our findings on the major drivers of coal closures, as well as a deep dive into the economics of each of the existing coal assets in the NEM.
The analysis draws upon our market experience, with much of the content developed through a detailed consultation process across market participants. The report was first presented during a Group Meeting in May 2019 and was subsequently updated to reflect feedback from the Group Meeting.
Key messages to emerge from the analysis are:
1. Coal closure timelines are one of the major uncertainties in the NEM.
2. In Aurora’s Q2 central scenario, we endogenously model internal coal asset economics to determine closure dates, while also taking a view on future policy in the 2030s. In other markets, we have seen very different approaches to coal closures, and internal game theory and option value calculations may mean coal stays on longer than a purely economic view would indicate is optimal.
3. Some coal assets are relatively more vulnerable to early closure – particularly across low demand and low gas/ high coal price scenarios, we do see earlier exit of coal assets, but the closures of Liddell in the early 2020s and one or two more plants in the late 2020s/ early 2030s creates significantly more inframarginal rent for other coal assets.
4. If coal does close early, Aurora modelling forecasts a mix of gas, renewables and flexible/ storage technologies will be required to replace coal
The Aurora Team
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