Fu­ture of coal plants in doubt

Gen­er­a­tors warn the demise of coal- fired plants will af­fect whole­sale prices. Keith Orchi­son re­ports

The Weekend Australian - Review - - Clean Energy -

IF Ross Gar­naut has his way and coal­fired power sta­tions have to bear the full bur­den of the Aus­tralian emis­sions trad­ing scheme, how many of the present fleet will still be in op­er­a­tion in five or 10 years? This is a ques­tion grow­ing in im­por­tance for a num­ber of stake­hold­ers in the en­ergy busi­ness, and not just the coal­burn­ing gen­er­a­tors di­rectly af­fected.

Cen­tral to the an­swer is the price of car­bon emis­sion that will emerge from the Rudd Gov­ern­ment’s de­ci­sions on trad­ing pol­icy — which won’t nec­es­sar­ily be a rub­ber stamp on Gar­naut’s rec­om­men­da­tions. Cli­mate Change Min­is­ter Penny Wong has made it clear the Gov­ern­ment will not be bound by what Gar­naut thinks it should do.

Cur­rent think­ing in the in­dus­try and among the myr­iad an­a­lysts buzzing around the is­sue is that the Gov­ern­ment will set up a regime that re­sults in a car­bon price of at least $ 20 per tonne — and the gen­er­a­tors, through their lobby group, the Na­tional Gen­er­a­tors Fo­rum, say this will add $ 4 bil­lion a year to their costs.

The real price of the trad­ing scheme per­mits, how­ever, will be set in the mar­ket and there is con­cern among gen­er­a­tors and en­ergy- in­ten­sive man­u­fac­tur­ers that it may range well above $ 20. Man­u­fac­tur­ers are es­pe­cially vul­ner­a­ble to com­peti­tors with pro­duc­tion plants in coun­tries with­out a car­bon charge.

An ex­am­ple of the im­pact of per­mit prices is con­sul­tant modelling that shows a $ 30 charge would drive up whole­sale prices in the na­tional elec­tric­ity mar­ket by more than 50 per cent, lead­ing to a 25 per cent in­crease in cus­tomer bills. For en­ergy- in­ten­sive man­u­fac­tur­ers spend­ing 25 to 35 per cent of their an­nual op­er­at­ing costs buy­ing power this is a wor­ry­ing prospect.

The gen­er­a­tors want the Gov­ern­ment to is­sue enough free per­mits to its mem­bers to en­able them to em­bark on a phased shut­down of their higher- emit­ting plants and to re­place them with new tech­nol­ogy. Gar­naut won’t have a bar of this.

In pro­mot­ing this plan, the NGF points to the money gen­er­a­tors have out­layed vol­un­tar­ily since 2000 on re­duc­ing emis­sions. Fo­rum chief ex­ec­u­tive John Boshier says this amounts to $ 2 bil­lion and has re­sulted in emis­sions be­ing cut by 4.4 mil­lion tonnes a year. The gen­er­a­tors, he adds, have an­other $ 1.5 bil­lion worth of out­lays in train which will lead to abate­ment gains of an­other 1.7 mil­lion tonnes a year.

This ex­pen­di­ture has gone on green­house mit­i­ga­tion pro­grams that gen­er­a­tors agreed with the Howard Gov­ern­ment — on com­mit­ments to low- emis­sion tech­nol­ogy projects also funded by Howard’s Low Emis­sion Tech­nol­ogy De­vel­op­ment Fund, and on re­new­able en­ergy projects re­spond­ing to the ini­tial Manda­tory Re­new En­ergy Tar­get ( MRET) scheme.

In ad­di­tion, says Boshier, gen­er­a­tors have spent $ 108 mil­lion on re­search and de­vel­op­ment, mostly con­tri­bu­tions to the co­op­er­a­tive re­search cen­tres fo­cussed on green­house abate­ment.

Their will­ing­ness to pur­sue th­ese in­vest­ment on a vol­un­tary ba­sis should now re­ceive some recog­ni­tion from the fed­eral Gov­ern­ment in fram­ing emis­sions trad­ing, he ar­gues.

Part of the gen­er­a­tors’ prob­lem is the per­cep­tion of Gar­naut and other gov­ern­ment ad­vis­ers about what hap­pened in the Euro­pean Union when emis­sions trad­ing was in­tro­duced ear­lier this decade. EU per­mits were ‘‘ grand­fa­thered’’ — al­lo­cated for free — to gen­er­a­tors to min­imise very sub­stan­tial wealth trans­fers from them to car­bon traders. But this led to both so- called wind­fall prof­its in the gen­er­a­tion in­dus­try and a sharp spike in cus­tomer prices, a dou­bly un­pop­u­lar out­come with vot­ers.

Aus­tralian gen­er­a­tors claim our big dif­fer­ence is that coal- fired plants here pro­vide 85 per cent of the mar­ket ver­sus less than 30 per cent in the EU. Boshier also ar­gues that Euro­pean gen­er­a­tors re­ceived nearly 90 per cent of their per­mits free. This has never been on the ta­ble in Aus­tralia, he says, and the pro­posal here is far more mod­est.

Fail­ure to grand­fa­ther a por­tion of Aus­tralian per­mit for gen­er­a­tors, he says, will drive some coal- fired plants out of the mar­ket pre­ma­turely, lead­ing to spikes in whole­sale prices, mar­ket volatil­ity and prospects of un­re­li­able sup­ply.

The Gov­ern­ment, he adds, is run­ning the risk of ‘‘ cat­a­strophic sup­ply- side dis­lo­ca­tion’’ in the elec­tric­ity mar­ket if it al­lows it­self to be per­suaded against grand­fa­ther­ing by Gar­naut. The im­pli­ca­tions of this hap­pen­ing, he says, will far out­weigh prob­lems cre­ated by al­lo­cat­ing per­mits to in­cum­bent gen­er­a­tors.

The older the coal- fired power sta­tion and the higher its emis­sions in­ten­sity — the amount of CO it emits per megawatt hour of

2 elec­tric­ity out­put — the more en­dan­gered it is by an emis­sions trad­ing scheme.

Most ex­posed un­der a no- holds- barred regime are the brown coal plants in Vic­to­ria. They have an in­ten­sity rat­ing of about 1300kg per MWh of elec­tric­ity sent out — black coal burn­ers in Queens­land and New South Wales av­er­age 890 to 920kg/ MWh.

While the brown coal units are to­day fre­quently among the first dis­patched in the east­ern seaboard elec­tric­ity mar­ket be­cause of their low- cost fuel, un­der an emis­sions trad­ing scheme they are ex­pected to be driven back­wards through the NEM dis­patch pack of 30 power sta­tions.

Among those most threat­ened is one of Aus­tralia’s old­est power com­plexes — Hazel­wood, 150km from Melbourne and owned by Bri­tish- based In­ter­na­tional Power. It sup­plies 12,000GWh a year of elec­tric­ity, meet­ing 19 per cent of Vic­to­ria’s peak sum­mer de­mand.

The eight 200MW tur­bines at Hazel­wood were in­stalled be­tween 1964 and 1971 and the sta­tion was on the cusp of be­ing shut down when the Ken­nett Gov­ern­ment launched its pri­vati­sa­tion pro­gram. Its buy­ers out­layed $ 2.35 bil­lion and then spent an­other $ 400 mil­lion up­grad­ing it and re­duc­ing its green­house gas emis­sions by some 8 per cent.

The com­plex was the cen­tre of a stren­u­ous en­vi­ron­men­tal cam­paign ear­lier this decade when it ap­plied for ac­cess to ex­ploit a new coal field. Declar­ing it ‘‘ the dirt­i­est power sta­tion in the in­dus­trial world,’’ en­vi­ron­men­tal­ists sought to have it close next year when ex­ist­ing coal re­sources reach de­ple­tion. In­stead, the Bracks Gov­ern­ment ap­proved the ap­pli­ca­tion, en­abling the power plant to keep op­er­at­ing un­til 2027.

In ex­plain­ing its de­ci­sion, the Vic­to­rian Gov­ern­ment said clo­sure of Hazel­wood would ‘‘ re­sult in sig­nif­i­cant in­creases in power prices and a real risk of power short­ages be­fore a new gen­er­a­tor is built.’’ It fore­cast a 40 per cent in­crease in whole­sale prices and a 17 per cent rise in res­i­den­tial power bills.

The Gov­ern­ment added that re­plac­ing Hazel­wood with a gas- fired power sta­tion would in­crease the State’s gas con­sump­tion 40 per cent and might drive up gas prices, too.

As part of the deal, the Gov­ern­ment has re­quired Hazel­wood to re­duce its pro­jected green­house emis­sions by 34 mil­lion tonnes over the rest of the de­vel­op­ment’s life.

In­ter­na­tional Power is now fi­nal­is­ing plans to retro­fit low- emis­sion tech­nol­ogy to one of its 200MW units at a cost of $ 370 mil­lion, to save 500,000 tonnes of car­bon diox­ide emis­sions an­nu­ally from 2010.

Clos­ing Hazel­wood and re­plac­ing it with wind farms would re­quire 2500 wind tur­bines — at an es­ti­mated cap­i­tal cost of $ 6-$ 7 bil­lion and, us­ing the cur­rent MRET sub­sidy as a guide, would add $ 480 mil­lion a year to con­sumer elec­tric­ity bills.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.