In­ex­pen­sive base load tech­nol­ogy vi­tal fac­tor

The Weekend Australian - Review - - Clean Energy - JON STAN­FORD

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

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