Early Yallourn power station closure sets the pace for ASX energy sector shakeup

Yallourn Power Station set to close 4 years earlier. Energy shares, including Origin Energy Ltd (ASX: ORG) fell on the news today.

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Two hands raised against eachother with lightning flashes between them, indicating and energy clash between fossil fuels and renewables

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Energy Australia has announced today that it will bring forward the closure of its Yallourn coal-fired power station in Victoria by 4 years. Therefore, operations will cease in mid-2028, instead of the previous 2032 target.

The decision set the tone for the Australian Financial Review’s Business Summit discussion with Origin Energy Ltd (ASX: ORG)’s CEO Frank Calabria; and BHP Group Ltd (ASX: BHP)’s head of carbon management, sustainability, and climate change, Graham Winkelman.

Green future is desired, but the path there is complex

It is a fine balance, trying to walk the tight rope of supply and demand while also transitioning to renewables. The difficulty is further compounded by the government’s hand in the markets.

Renewable subsidisation from governments means traditional energy producers find it hard to compete. Ironically, as is this case for Yallourn, the government will offer a support package to transition the 500–1,000 jobs that are expected to be lost. So, either way, governments are finding themselves having to play both sides to ‘sustainably’ reach the end goal.

Origin Energy weighs in as share price dips

Both the Origin Energy share price and the BHP share price have fallen this afternoon, after the shutdown news.

Calabria today remarked that Yallourn’s earlier closure is a sign of what’s to come: “In truth, the energy transition has been underway for many years. You can see that by the growth in renewable energy over the last decade.”

Calabria further commented on the fact that end-of-life programs will need to be managed as renewable energy overtakes traditional energy production.

Everyone with their existing assets will need to make the assessment in their own portfolios, and I think that’s probably a good point to raise that when there’s the prospect of changing policy that represents a risk to the commitment of large investment.

Based on Origin’s 2020 annual report, the power producer held 7,400 megawatts of power generating assets, nearly 19% of which were owned and contracted renewables and storage.

Yallourn power station is tip of the iceberg

NSW Premier Gladys Berejiklian also chimed in on the matter. Despite the improvement in climate change policies, the Premier stated that Australia has “a little catching up to do”, adding “We need the right politics.” A sentiment that Calabria also mirrored during his address.

All this ‘catching up’ will certainly come at a cost. A cost that Commonwealth Bank of Australia (ASX: CBA) senior exec Andrew Hinchliff estimates could be as high as $12 trillion.

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Motley Fool contributor Mitchell Lawler owns shares of Commonwealth Bank of Australia. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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