Coal-fired generation is facing a limited lifespan in Australia

Despite the supply risks, the argument is weighted too heavily in favour of renewables for coal to have a robust future.

Nothing generates heat in Australia like the energy debate.

Just like Malcolm Turnbull, Snowy Hydro chief executive Paul Broad likes to monitor his mobile telephone to keep track of what is happening in the wildly erratic Australian electricity market.

Much attention has been paid to the volatile price spikes in which a megawatt hour of electricity can hit a cap of $14,000, as it did last month when a shortage of coal, wind and solar power squeezed the market.

For Broad, it is just as important to know when prices move in the opposite direction. Sometimes generators will offer to pay up to $1000 a megawatt hour for someone to take their power. It is a brutal ­reality that has been wrecking the economics of coal-fired generators, which cannot simply switch off when wind and solar swamp the market.

When that happens, Snowy Hydro pumps like crazy, effec­tively being paid to shift water ­uphill to produce electricity to sell at a later time when supplies are short and prices are high.

“The way the system works, the way the market works, is that ­renewables get preference for coming on,” Snowy Hydro chief operating officer Roger Whitby told a Senate estimates hearing last month.

“So with the wind blowing a lot, the renewables will get preference. That’s why you get the minus $1000. The short-run marginal cost for a wind generator is zero. The short marginal cost for coal is not. So the economics of the coal plant is that they can’t get that flex right.”

That, in a nutshell, is why the future for new coal plants in Australia is considered to be bleak.

It does not stop the obvious questions being asked.

Could a fleet of new highly ­efficient, lower-emissions coal plants be a better option for Australia to meet its commitments of reduced electricity bills for consumers, reliability of supply and lower carbon dioxide emissions?

And what about nuclear?

If other countries are able to rely on zero-emissions nuclear and build hundreds of new coal plants, many of which will burn coal imported from Australia, why can’t we?

Analysis by Solstice Development Services for the coal industry last year came out in favour of coal.

WEB Inquirer Electricity generation costs

It compared generation technology options for a notional 650MW baseload power station that could deliver reliable, secure, ­affordable and sustainable baseload electricity.

The critical factor for the like-for-like comparison was the ­assump­tion that revenue for the 650MW power station was “underwritten” in the form of a long-term agreement covering the purchase of the output or capacity of the plant.

The long-run marginal cost (covering the life of the project) analysis showed that, of the available, schedulable generation technology options, a high-efficiency, lower-emissions, ultra-super-critical coal-fired power station was the lowest-cost generation option that could meet all of the key criteria for reliable, secure, affordable and sustainable electricity, using both current day costs and projected costs as at 2030.

The problem for coal is that there is no guarantee any new power plant could sell all of its power into Australia’s rapidly evolving electricity market for decades into the future.

The renewable energy target is not just a price subsidy, it also guarantees market share and sales for renewables projects.

“This helps to de-risk renewable projects and enable them to compete in the market without having to bear the cost of inter­mittent supply themselves,” a ­minerals industry spokesman tells Inquirer.

“The cost is borne by the consumer when flexible generation is required more often, which is more expensive and drives up the wholesale price.”

Supporters of renewable energy are right to claim its cost has been falling fast and will continue to do so.

Better batteries and investment in big storage projects like Snowy 2.0 stack the odds further against coal being able to compete.

As a result, a global review ­released yesterday by Bloomberg New Energy Finance says Australia is set to generate 92 per cent of its electricity from renewable ­energy sources such as solar and wind by 2050.

This will occur as coal power stations are replaced with lower-cost renewables paired with flexible technologies such as batteries, pumped-hydro and gas.

The key findings from the BNEF review for Australia are:

• Wind, solar, batteries and pumped hydro will replace ­retir­ing coal.

• Large amounts of cheap ­renewables will undermine the business case for building new coal. The estimates are that by 2050 the cost of new low-cost solar and wind will fall to about $US21 a megawatt hour while the cost of refurbishing coal will ­remain about $US56.

• Despite the loss of coal, the system will maintain reliable supply as pumped hydro (assum­ing Snowy 2.0 is constructed), batteries, gas and demand response are all added to support the ­uptake of variable wind and solar.

• Nearly half of capacity will be located behind the meter in 2050 and, together with demand response and storage, make up 44 per cent of total power ­capacity.

Reports such as BNEF’s might be considered overly bullish for ­renewables, with enthusiasm often trumping reality.

But a sobering assessment was provided last week in BP’s 2017 statistical review of global energy.

It says that despite the billions invested in solar and wind, carbon dioxide emissions increased last year and the transition to a lower-carbon energy system has taken a backward step.

BP group chief economist Spencer Dale says most striking had been the failure of renewable energy to make an impact on fossil fuels’ share of power generation.

“Despite the extraordinary (global) growth in renewables in recent years and the huge policy efforts to encourage a shift away from coal into cleaner, lower carbon fuels, there has been almost no improvement in the power ­sector fuel mix over the past 20 years,” Dale says.

The share of coal in the power sector in 1998 was 38 per cent, ­exactly the same as last year.

“The share of non-fossil fuel in 2017 is actually a little lower than it was 20 years ago, as the growth of renewables hasn’t offset the ­declining share of nuclear,” Dale says.

He says that to have any chance of getting on a path consistent with meeting the Paris ­climate goals to limit global warming to 2C, significant improvements are needed.

Snowy Hydro says it is certain it has a central, and profitable, role to play in Australia’s energy transition.

And that market reality rather than government mandate or ­renewable energy targets will lead the way.

“Don’t get hung up on the ­renewable target,” Broad told Senate estimates. “The amount of base­load (coal) that comes out of the market determines the ­viability or not of 2.0.

“There are 4000 megawatts of renewables that are going to be in the market by 2020. And that’s scaling up.

“A thermal (coal) plant’s got to operate in the 90 per cent (of ­capacity) range to make any of the economics work (but) with that sort of penetration of renewables, unfortunately for thermals, they’re in the 70s, and the economics of those change dramatically.”

For Snowy Hydro, the equation is that a high penetration of ­renewables will need backup.

“The 4000 megawatts coming into the marketplace today cannot stay on without pumped hydro or hydro storage of some form,” Broad says.

“It can’t happen. The lights don’t stay on, as we found out in South Australia.”

Snowy Hydro says it is confident the project can be justified even if a new coal plant is built.

“You’d have to have multiple ones. One wouldn’t make any difference at all,” he says.

Energy finance specialist David Carland says the government must make a choice.

“The development of a major new coal-fired station will destroy the viability of Snowy 2.0,” Carland says.

“The federal government needs to make a choice: does it want Snowy 2.0 or does it want a major new coal-fired station?”

In March this year the federal government announced it will spend $6 billion to buy out NSW and Victoria’s share in Snowy Hydro Limited, meaning it is moving towards wholly owning the company ahead of work on the Snowy Hydro 2.0 project.

Others have called for regulatory hurdles to be removed so ­nuclear can also be an option.

“Nuclear remains the only readily deployable, zero emissions, dispatchable, affordable, electricity source humans have developed,” the Minerals Council of Australia executive director for uranium, Daniel Zavattiero, says.

“It’s extraordinary energy density is indispensable for a still-growing global population requiring the smaller environmental footprints for power ­generation.”

In Australia, however, nuclear is prohibited even from being considered under the regulations in the Environmental Protection and Biodiversity Conservation Act.

Despite an insistence on technological neutrality, details of the federal government’s proposed national energy guarantee released this week make clear where things are headed.

The NEG proposes a complicated system of trading and penalties to marry the competing objectives of cheaper and more ­reliable electricity with cutting greenhouse-gas emissions.

According to the Energy Security Board, the reduction in dis­patchable coal-fired generation and the greater penetration of ­intermittent technologies such as solar and wind generation present risks to the reliability of electricity supply.

While some new wind and solar investments in Australia are seeking to make themselves “dispatchable” by co-locating with a battery or storage such as pumped hydro, this is not true for the ­majority.

“The objective of the guarantee is to combine reliability outcomes and emissions targets to guide ­investment in and operation of supply-side and demand-side ­resources to meet these challenges at the lowest possible system cost,” the ESB has said.

The numbers clearly have been stacked against coal and debate now is whether they have shifted against a future for heavy industry as well.