In simple terms as a few dot points:
*Power generation includes a range of plant types with vastly differing technical efficiency and economics. The most efficient plant operating in the National Electricity Market uses less than half as much fuel per unit of output as the least efficient.
*Broadly speaking, higher cost to build = lower cost to operate and vice versa.
*Since demand is highly variable, a least cost approach requires a mix of plant types. High build cost / low operating cost for routine use but cheap to build / expensive to operate still makes sense as backup or to meet short duration and infrequent peaks in demand.
*For technical reasons some plant suffers a major loss of efficiency if operated at low output whereas others suffer only minimal loss. Also some plant types are much easier to stop completely and later restart than others.
Now the problem we have is the owners of low operating cost plant intentionally backing off production, or taking units offline altogether, in order to force the less efficient and higher cost plants to run. That then pushes up the spot price with the end result that all generators, including those who cut production, increase profit.
Hedging contracts may nullify that in the short term but in the long term such contracts will reflect spot prices so they still win eventually.
This situation arises
because of competition not in spite of it. A single owner, regardless of whether it's private, a listed company or government, would never contemplate deliberately increasing production costs as that's just silly. It is the outcome of a competitive market however when company A really isn't supposed to be colluding so as to optimise company B's plant operations.
It would thus be easily possible to cut both costs and emissions simply by least cost operation of the existing generation fleet. Nothing new built, nobody put out of a job, just change what's running and when. At most some minor complexity with changing the gas flow in pipelines and making sure the right amount of coal turns up at the right place but nothing's going to be blown up and nobody from some union is going to be bashing on the door worried about job cuts.
My view is that we need an ownership and market structure designed to suit the engineering realities of operating the system. Instead, what we have at the moment is the engineering being twisted to fit within an ownership and market structure which precludes optimal efficiency.
Note that my point is not in any way about government ownership versus private. There's some very capable operators, and some not so capable, in the private sector but I don't have an ideological view there. I do know however that artificial "fake" competition is killing efficiency.
Competition is fake?
Well it is when you realise that huge scale is needed in order to achieve efficiency and in that context AGL, Origin or Energy Australia are by no means "too large" indeed if anything they're a bit too small. So there's a conflict between the economic desire for competition versus the loss of technical and economic efficiency through doing so. Hence competition isn't leading to lower prices, a point that comes as no surprise to those viewing it all from an engineering perspective.
Then there's the reality that, for example, Alinta buys coal with which to generate electricity. Lots of coal, millions of tonnes of the stuff every year in fact. Now who mines and sells them every piece of that coal? Well that would be AGL.
AGL burns lots of gas at Torrens Island whilst nearby Engie burns plenty at Pelican Point too. Follow that pipe to the other end and you won't find AGL or Engie producing gas but you will find Origin.
No secret that there's a lot of financial arrangements between Snowy and rivals.
And so on.
The whole thing just doesn't fit into the mould into which economists and governments keep trying to squash it at huge expense. That's all about industry structure not coal versus solar.
Only after all that is fixed would there be any real point in a taxpayer subsidised power station of any technology be it coal, nuclear, wind, hydro or burnt leaves.