Inexpensive base load technology vital factor
IN his speech to the APPEA conference in Perth this month, the Minister for Resources, Energy and Tourism, Martin Ferguson, announced the Rudd Government will undertake an ‘‘ energy security assessment’’.
This is a very welcome announcement. After a slow start, the world is gearing up its efforts to address climate change. Only two years ago, the more enthusiastic greenhouse protagonists were seeking an agreement to stabilise carbon concentrations in the atmosphere at 550 parts per million ( currently 380ppm). This year, there is an increasing recognition that the world is warming at a faster rate than was previously thought and a view that stabilisation at 450ppm is required to limit the average temperature rise to 2C. Recently, James Hansen, the eminent US climate scientist, even suggested that we need to stabilise concentrations at 350ppm.
Any of these targets would constitute a major challenge. If we are to stabilise at 450ppm, for example, the world will need to reduce greenhouse gas emissions by around 85 per cent from 2000 levels by 2050.
Over a period when global energy demand is projected to triple this is a big ask. So how are we going to get there? In the first instance, the Rudd Government is likely to commit, with other developed economies, to a significant cut in emissions to 2020. The extent of this reduction may be such that, in the electricity sector, current technology coal generation will no longer be viable by 2020.
The key question is, what base load technologies are going to replace coal- fired generators? Renewables and gas are fine for peaking and intermediate loads, but access to relatively cheap base load electricity has become a key factor in the competitiveness of many of Australia’s export industries, the foundation of our wealth. How will we maintain that competitive edge in the face of a significant carbon price?
Other countries are already going down a path that is currently closed to us. France reduced its emissions from electricity generation by 80 per cent in seven years, at minimal economic cost, by converting to nuclear power. The US is commissioning new generation nuclear plant now because, apart from producing zero emissions, the cost of electricity is less than that produced by coal. Britain has recently made a U- turn on nuclear power and, in seeking to address climate change, has allied itself with France in a mission to take their technology to the world. In Italy, nuclear power featured prominently in Berlusconi’s election platform. China and Japan are both gearing up for a major nuclear build program.
In Australia, all political parties have rejected nuclear power in favour of clean coal, gas and renewables. All of these technologies have much to offer. In particular, it is of great importance to Australia that clean coal technologies are developed and deployed at a commercially acceptable cost. But it is far from clear that this will happen by 2020 and, as Robin Batterham pointed out at Victoria’s climate change summit, the cost of new technologies tends to blow out as they come to reality.
With the exception of geothermal, which is highly promising in Australia but likely to provide only limited supplies, renewables are unsuitable for base load power as well as being uncompetitive, at present, in cost.
Gas is widely regarded as an interim solution to Australia’s base load dilemma. But will investors commit funds to assets with a 40- year life in pursuit of an interim solution? For a power source with a still significant carbon footprint, they will be concerned at the prospect of ever higher carbon prices. The competitiveness of combined cycle generators is also highly sensitive to the gas price, and investors will note that, in a LNG- hungry world, gas prices have quadrupled in the last two years in Western Australia. They will also need to be convinced that the current ban on nuclear power, a cheaper, zero- emissions technology, will stick.
In the face of all this uncertainty, the Government is to be congratulated on establishing an energy security assessment. Ideally, its findings should be available in time to inform the Government’s consideration of an appropriate emissions target for 2020.
Jon Stanford is a partner with Deloitte Economics in Melbourne