9 February 2017
Remove the distortions and clean coal will cheaply lower CO2 emissions
From the Australian Financial Review
At 8am today, coal will provide about 80 per cent of the electricity used on Australia’s east coast. It was about the same yesterday and will be the same tomorrow. It is the workhorse of the Australian energy system, reliable and affordable. While some of the other meretricious players in the energy system flutter in and out of the energy market, coal is always there, 24 hours a day, seven days a week. It covers for them when the sun goes down and it covers for them when the wind doesn’t blow. It is the indispensable one.
As some of this baseload generation comes to the end of its life over the next decade there is a debate about what comes next. It is a consequential decision. Energy matters. It is a key determinant of the living standards of Australian households and the competitiveness of Australian business. And higher energy prices hit low income households and export and import-competing businesses hardest.
The Turnbull Government has rightly signalled that High Efficiency Low Emissions (HELE) coal generation will be considered as part of the future energy mix. These plants’ technologies deliver the same affordable, reliable coal generation but with up to 50 per cent lower CO₂ emissions.
A hardly surprising reaction
In recent days, however, some energy company representatives have said there is no appetite for new coal-fired power generation in Australia. That reaction is hardly surprising. The Resources Minister Matt Canavan put it best on Friday when he remarked that no-one asks Coles and Woolworths if Costco should come to town. Moreover no one is talking about a new power station next week. The energy market is still trying to digest the addition of 33,000GW of renewable generation, which is being force fed into a flat, oversupplied market.
In the end, the choices of energy providers will ultimately come down to cold hard economics. In this respect, there has been some fake news about the cost of modern coal plants in recent days. The facts on the ground are the best antidote to this nonsense. The Australian Power Generation Technology Report published last year concluded that new efficient coal generation was one of the lowest cost options. Meanwhile, new plants are dominating new generation built in South East Asia and coal will overtake gas as the primary electricity source by 2025. That’s not wishful thinking – it is based on analysis of national governments’ actual power plans by the Oxford Institute for Energy Studies.
1200 being built worldwide
Only two months ago, the International Energy Agency published a detailed assessment of Chinese and Indian energy costs and concluded that HELE coal generation was the cheapest available option by far. The Japanese Government ranks HELE coal as the cheapest option there and is building 45 more plants. In a comprehensive review, investment bank Morgan Stanley found that “this technology can aid the world’s transition toward lower emissions … and provide a cost-effective means of reducing carbon pollution”. Morgan Stanley estimated that the cost per tonne of carbon emission reduction via these plants is $US10 per tonne. That’s much, much lower than most other options.
Even the poster person of renewable energy, Germany, is keen on super-efficient coal technology. It hosts the world’s largest brown coal plant, BoA 2&3 plant in Grevenbroich-Neurath, which can also ramp up and down in 15 minutes to work well with renewables. (As an aside, this model would be ideal for the Latrobe Valley.)
And just last month German authorities gave approval for a new black coal plant, Datteln 4. According to Platt’s – a global consultancy that monitors electricity generation trends – there are more than 1200 HELE units planned or under construction around the world. How is it that these plants are the lowest cost option in dozens of coal importing nations but not in Australia, which is the biggest exporter of high quality coal in the world?
Removing the distortions
On Friday in this paper, the chief scientist Dr Alan Finkel said that new low emissions coal would have to “stack up”. No dispute there. Presumably his final report will propose the same “stack up” test be applied to all energy sources. I note in passing that the current scale of subsidies to the renewable sector is $3 billion per year, including guaranteed market share.
The bottom line is that once the policy distortions are removed from the Australian market, coal generation will be a real contender. And there is a simple reason why. The three imperatives of energy policy in Australia are reliability of supply, affordability and lower emissions footprint. In that order. New generation coal plants can deliver on all three. You can’t say that about all the other energy options on the table. In an even contest, HELE coal and HELE coal with carbon capture and storage will have a big show.