IAN VERRENDER. Coal-fired generators have no future in Australia.

From an economic perspective, it would be far more efficient to eliminate subsidies altogether and to put a price on carbon that reflected its true cost. Private investors then would be able to choose which technology was most efficient.  

Maybe it’s the heat, or the unprecedented run of searing temperatures scorching the continent.

Whatever the cause, the torrid debate in Parliament over carbon emissions and electricity in recent months couldn’t have occurred at a more appropriate moment.

The only problem is that every politician, state and federal, has always clung to the truism that power begets power or, perhaps the inverse; that whoever delivers blackouts gets booted out of office.

As the finger-pointing over higher prices nationally, blackouts in South Australia and threatened disruptions across the eastern states escalates, any notion over rational debate on how best to address the nation’s long-term energy challenges has evaporated.

Put aside the irony that the recent run of misfortune on the national electricity grid is the direct result of a savage uptick in extreme weather conditions, a trend the vast bulk of climate scientists have been warning of for decades.

The simple truth is that, despite the entertaining theatre of insults in the national capital, Australia’s future power needs overwhelmingly will be provided by renewables and gas. Coal-fired generators have no future in Australia.

That is a trend driven by energy generators and consumers, both of which have abandoned hope of policy leadership from Parliament.

Generators jettisoned the idea of coal years ago, at least when it comes to building new power stations, because they carry too much risk. You’re looking at upwards of $1 billion for a large-scale coal-fired generator that would be expected to last around 50 years.

No rational businessperson is willing to commit that kind of funding over that period, in an electoral cycle that lasts just three years. And that’s just the equity side.

An investment of that magnitude also requires huge amounts of project debt and, faced with the prospect of stranded assets and non-performing loans, financiers have wiped their hands of the idea of coal-fired electricity.

Consumers, meanwhile, have plunged into renewables, with Australians among the world’s fastest adopters of rooftop solar.

Renewables v coal

Sadly, much of the debate about our future power generation has become mired in political point-scoring and simplistic arguments designed to inflame and outrage; where ignorance dominates academic research. The recent power outages in South Australia are a prime example.

While it has become fashionable to denigrate scientists, particularly when related to climate or energy, it’s worth reading through the CSIRO’s 2015 report into Australia’s future energy needs.

“Electricity grids are complex systems and the largest machines ever developed by humans,” it notes.

With that in mind, it attempted to compare the costs of various forms of power generation, from traditional fossil fuel plants to the renewable technologies and everything in between.

What it found was that none of the new technologies can deliver power as cheaply as our current batch of carbon belching coal plants.

When it came to renewable energy, wind was the winner while among the new-generation fossil fuel plants, gas-fired combined cycle plants and supercritical coal-fired generation came out on top.

In a nutshell, the study explains that renewable energy has high upfront costs but is extremely cheap to run, given the fuel — wind and sun — comes at no cost. Gas plants are cheaper to build, but have higher running costs.

But there’s one crucial cost that weighs heavily on the minds of investors and bankers. And that’s carbon.

According to the CSIRO, if a carbon price was introduced, the economics of power generation shifts in favour of renewables, although a relatively high price is required. Wind is competitive with new-generation coal at $30 a tonne of carbon dioxide, solar at $70 a tonne.

Carbon storage, the kind of technology the Government is now looking at, can also be expensive, ranging from $5 to up to $70 a tonne.

Carbon pricing is inevitable

Although early attempts at pricing carbon emissions have failed, no-one in the power industry, or those that finance it, is under any illusion that emissions will be free forever.

It is the same in mining. Every major corporation views carbon pricing as inevitable and includes a range of prices when determining the economics of long term projects.

Given the significant costs levied on those putting waste into landfill and the prohibition on disposing of noxious materials into our waterways, it’s remarkable that to this day, the atmosphere is freely used as a garbage dump at no cost.

Last week, a study commissioned by the Minerals Council claimed that renewable energy in Australia was the beneficiary of huge subsidies.

Large-scale renewable projects, it claimed, were on the receiving end of $1.8 billion in direct subsidies last year alone. That’s a claim rejected as simplistic and incorrect by those in the renewables industry.

Whatever the number, there is no doubt that renewable energy has been on the receiving end of vast subsidy handouts both for large scale and home generation here and around the globe.

But it’s equally true that, in the absence of a carbon price, high-polluting industries have been getting a free ride, not only by avoiding the cost of damage to the environment and the planet, as the science overwhelmingly points to, but through the damage to the health of countless millions of people.

It’s also worth noting that every Australian coal-fired power plant was built with taxpayer money. As were the electricity distribution systems. And while many since have been sold to private interests, the sales processes have thrown up some interesting numbers.

When the NSW government sold its electricity generation assets for $1.5 billion, the deal was hailed a breakthrough. But the Tamberlin Inquiry in 2011 discovered about $4 billion worth of taxpayer subsidies to the generators in the form of cheap long-term coal contracts.

Coal-fired generators also use huge amounts of water, much of which — unlike farmers — is gifted to them. Then, of course, there are the would-be new coal miners up in the Carmichael Basin — most notably the Adani family — with their hands out for about $1 billion in taxpayer-funded infrastructure.

What’s the solution?

From an economic perspective, it would be far more efficient to eliminate subsidies altogether and to put a price on carbon that reflected its true cost. Private investors then would be able to choose which technology was most efficient.

One of the great drawbacks of renewables has been the intermittent nature of its generation. As a famous politician once noted wryly:

“If the wind doesn’t blow or the sun doesn’t shine, there is no power being generated.”

That’s true. But energy storage, particularly batteries, is the game changer that could rectify that shortcoming.

Just as the cost of solar panels has plummeted in recent years, as production technology has improved and the huge demand from households and business has improved economies of scale, the same can be expected from energy storage technology systems.

That will create a new set of technical headaches and cost challenges on how best to maintain a national power network, for which we appear to be entirely unprepared.

Ian Verrender is the Business Editor of the ABC. This article was first posted on 13 February 2017.

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3 Responses to IAN VERRENDER. Coal-fired generators have no future in Australia.

  1. Dog's Breakfast says:

    Cheap long term coal contracts, free water, despoliation of the landscape and pitiful amounts set aside for remediation, threat to existing water supplies by long wall mining under existing dams, no provision for cleaning the air from the exhaust of burning coal for the non-carbon component (ash etc), no cost for the coal dust created in the extraction process, no compensation for the land surrounding coal mines that can no longer be used for crops and cattle, no provision for loss of productivity on that land. The freebies embedded in the coal industry are legen, wait for it, dary!

  2. James O'Neill says:

    Ian, what you say is correct, but I think you underestimate the influence of two factors in particular. The first is that the fossil fuel industry wields considerable political power through donations and other forms of support. In turn they get incredible taxpayer support, and the
    Adani proposed mine is but one example.
    The second factor is that we have perhaps the least scientifically literate government in living memory. This is reflected in a number of ways, and policy, or more accurately lack of policy in areas such as climate change, emissions reductions and real support for renewables are the consequence.
    The power of this neanderthal element is such, one has only to look at Frydenberg’s emissions statement on a Monday only to be withdrawn by Tuesday and denied that it was ever there on Wednesday.
    This is not so much a government as a disorganised rabble.

  3. David Brown says:

    what Ian has written is OK but it seems that a year or two is a long time in the renewables world

    India has just announced very low bids for large scale solar and wind where short and long term costs are less than any other engineering solutions
    batteries are rapidly developing in capability and are already on a steep price reduction curve, as Ian says this is the game changer for wind and solar
    batteries give much faster response needed for wind and solar driven generation, far superior to gas especially when privatised gas is so subject to financial (and political?) game playing
    I guess one reason so many vested interest hate renewables is because once the generators are built then there is little ongoing opportunity for financial schemes around provision of fuel and being able to more easily distribute generation reduces network build and maintenance costs again reducing opportunity for private profits

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