Loy Yang A closure: How much VRE and firming capacity is required to cover peak hours?

AGL has accelerated the closure of the Loy Yang A power station for the second time in 2022, a few days after the Victorian government announced a target of 2.6 GW storage by 2030, increasing to 6.3 GW storage by 2035. According to the AGL announcement, released on 29 September, Loy Yang A will be shut down in 2035, one decade earlier than what was announced in February 2022. With a 2,210MW capacity, this plant provides approximately 30% of Victoria’s electricity generation and is responsible for ~17m tonnes of CO2 emissions per annum.

In this Chart of the week, we analyse the historical operation data of Loy Yang A to investigate the impact of its closure on the VIC peak hours generation and how much VRE and storage capacity is required to cover the peak hours in VIC. For this purpose, the dispatch data of all generation units in VIC from 2018 to 2022 (until the end of September), excluding 2019, was used. The reason for the exclusion of 2019 is the outage of Loy Yang unit 2 for ~7 months due to damage to the generator.

Figure 1a shows the average time of day dispatch of all technologies in VIC. It is evident that the rooftop solar uptake has impacted the generation profile of the coal power plants, including the Loy Yang A, during the day.  

However, this impact is less significant during the evening peak. As shown in Figure 1b, the generation of Loy Yang A during the day has reduced by ~400MW, while this is ~150MW during the evening in 2022 compared to 2018. This shows that there are still challenges to displacing fossil fuel-based capacities during the peak hours in the absence of solar generation. Wind and storage would be the main options for replacing Loy Yang A during the evening peak after 2035. Based on 2022 data, wind and storage only contribute to almost 20% and <1% of evening peak generation, respectively. Also, gas peakers could assist in covering the peak demands on low-renewable and high-demand days. However, due to no plan for building new gas plants and gas bidding strategies, they will not be able to fully replace Loy Yang A on average.  

With the closure of Loy Yang A in 2035, if we were to replace the capacity during the evening peak with renewable energy, how much additional VRE and storage would be required? To answer this question, we examined three different scenarios for the available storage capacity during the evening peak (5pm-9pm), including 15% (historical level), 17%, and 20% of the Victorian Government’s planned installed capacity. We estimated the required wind capacity for covering the peak capacity of Loy Yang A based on the historical capacity factor of wind in VIC during the evening (5pm-9pm), which is slightly higher than the average wind capacity factor in this region (~35% vs ~32%). We also need additional VRE capacity to charge the storage for operating over peak hours. Assuming that this volume comes mainly from solar, we calculated the required VRE capacity for injecting energy into the storage. Table 1 shows the summary of three scenarios.

This shows that for replacing the Loy Yang A during peak hours with storage and VRE, we need approximately 3GW of VRE and 1GW of storage. This is based on the historical average wind and solar conditions in the selected year (i.e. 2018 to 2022, excluding 2019). However, if low VRE seasons occur in the future, like the wind drought in 2016, more VRE capacity would be required. It also should be noted the estimated VRE capacity is only for covering peak hours. If we consider the Loy Yang generation volume in its entirety, the required VRE capacity will be higher than 3GW, mostly to cover the overnight period. As a blunt minimum assumption at 32% capacity factor (as mentioned above), we expect around 5,312MW of wind to replace the average ~1,700MW generation provided by Loy Yang during the day.

According to AGL, they plan to have 6.5GW of VRE and 5.5GW of firming capacities (batteries, pumped hydro, hydrogen, etc.) before 2036. This new VRE capacity seems low to replace the combined ~5GW of coal capacity from Bayswater and Loy Yang A. Again, as per the back envelope estimation, we would assume this should be more than doubled as Bayswater is approximately 20% larger than Loy Yang A. The insufficient replacement capacity could result in unserved energy, capacity scarcity, and extremely high prices during the evening peak or overnight in VIC. Therefore, it is crucial to investigate the impact of Loy Yang A closure more thoroughly and plan for new VRE capacity in advance to mitigate the challenges.

Our in-house Benchmark Power Curve (BPC) and our modelling consultants can help shed some light on how prices and capacity in the NEM will likely evolve. For more information, don’t hesitate to contact us at enquiries@cornwall-insight.com.au.

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