August 24, 2017 Read More →

Australian Coal Industry ‘on Life Support’

The Guardian:

For a glimpse into the future of coal power in Australia, go west. The country’s last major investment in coal-fired electricity was in Western Australia in 2009, when Colin Barnett’s state government announced a major refurbishment of the Muja AB station about 200km south of Perth, far from the gaze of the east coast political-media class.

The plant was 43 years old and mothballed. Reviving it was meant to cost $150m, paid for by private investors who would reap the benefits for years to come. But costs and timeframes blew out. An old corroded boiler exploded. The joint venture financing the project collapsed; a wall followed suit. The bill ultimately pushed beyond $300m, much of it to be stumped up by taxpayers – and once completed, the plant was beset with operational problems. It ran only 20% of the time.

By April 2016, the government acknowledged it was subsidising more generation capacity than it needed and predicted demand for coal power would fall over the coming decade. In May this year the new Labor administration confirmed Muja AB would shut early next year.

This spectacular failure had unique elements but underpinning it was a faith in the longevity of coal-fired electricity. Though it rated little mention in the east – mainly because WA is out of sight and has its own grid separate to the mislabelled national electricity market – it is a pointer to what lies ahead.

About a fifth of the country’s coal capacity has disappeared since 2012; Muja AB will be the 13th station to shut in that period; no new ones have opened this decade. For all the talk of new coal-fired power plants, none are in development.

If closures continued at the current rate, the nation’s coal fleet would be gone before 2040. It’s a pace that could put Australia within striking distance of what scientists say is necessary in the electricity sector for the country to play its part in combating climate change. It is far beyond what the government believes possible if the country is to maintain a reliable and affordable electricity supply, and slower than what some energy analysts think could happen given the extraordinary advances in renewable energy cost and technology.

“The coal-fired power sector is in free fall, and wind and solar are competing on cost with fossil fuels,” says Simon Holmes à Court, senior adviser at the federally funded Energy Transition Hub at the University of Melbourne. “Every single panel and turbine installed reduces the market size for inflexible baseload plants.”

Industry insiders stress the scale of the transformation being discussed shouldn’t be downplayed. Coal still provides about three-quarters of our electricity. In the short term, its withdrawal is likely to slow. Demand for power unexpectedly fell at the start of the decade, leading to an oversupply that suppressed the wholesale price of electricity. But with competition reduced and expensive natural gas-fired plants being called on to carry more of the load, the price is now as much as eight times the cost of generation. The remaining coal plants are making hay.

That will inevitably change. After an investment strike a couple of years ago, wind turbines and solar panels are going up in a rush to meet the national 2020 renewable energy target. Once they come online by mid-2019 competition will increase and, for a while at least, the skyward rush of wholesale electricity prices should ease. What happens to existing coal power plants at that point is an open question.

In a report on investment trends, analysts at Bloomberg New Energy Finance projected that by 2040 small-scale solar power will have replaced coal as Australia’s largest source of energy. They found 45% of electricity capacity would be “behind the meter”, rather than from the traditional grid. Photovoltaic panels, battery packs and demand response programs – cash incentives offer to those who volunteer to cut use at peak times – would take over.

As Bloomberg New Energy Finance’s Australian chief, Kobad Bhavnagri, acknowledges, modelling in this area will inevitably be wrong – but it indicates the direction. Holmes à Court believes the system is at a turning point that few have appreciated.

Here is what else we know: there is little to no interest in the business community in building new coal plants to replace those that shut. The 2015 Paris climate agreement triggered a step change in thinking about the long-term viability of fossil-fuel investments. Action towards meeting the Paris goals is fitful but financiers are operating on the assumption policies will escalate, including a probable eventual return to some form of carbon pricing. They are in no mood to make a decades-long bet against it.

The Australian Energy Council chief, Matthew Warren, representing most generators, summarised: “I don’t think the banking sector and the industry are looking to build coal-fired power stations for the foreseeable future.”

Coal is on the outer in other ways. As more variable renewable generation is introduced into electricity grids, market operators are increasingly favouring flexibility over the traditional baseload model. They see the future in generators that can swing in quickly on demand, rather than run all the time. The government has agreed new wind and solar photovoltaic farms will need to have “dispatchable” backup that can be called on at any time, but coal is not as nimble as batteries, gas, demand response or concentrated solar thermal with storage.

The most regular argument made in response to this is: other countries are building new coal stations and if the new technology is good enough for China, Japan and Germany, why not Australia? The Minerals Council of Australia is pushing hard for government funding for next-generation technology, known as ultra-supercritical coal which, according to a 2016 World Coal Association report, creates emissions that are 23% lower than the black coal plants of NSW and Queensland but is also 40% more expensive to build. Few fossil-fuel proponents still use the term “clean coal” – mockery has stolen its promotional punch, “clean coal” is a mirage – but when deployed it is applied to new technology that reduces emissions.

While it’s true that new generation “clean coal” plants are being built elsewhere, it is not a straightforward story of bold investment. The overwhelming majority are in China, where they make up nearly 20% of its huge coal fleet (and the fleet is massive – 20 times the capacity of Australia’s national grid). China’s extraordinary growth as it developed this century spurred unprecedented spending on all energy technologies, but its coal consumption has been in decline for three years. The Institute for Energy Economics and Financial Analysis found the Asian giant’s coal plants last year ran at only 47.5% of their capacity, and estimated it could have US$200bn in stranded coal assets.

More: Coal in decline: an energy industry on life support

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