Australia focus
Carbon reduction on the back burner
Neither side of politics in Australia gives any sign about doing much to reduce carbon emissions. Likewise, with Donald Trump in the White House, the chances of a more ambitious global accord are non-existent.
It is a strange turn of events that when our politicians fail to stand up for what they believe in, sometimes our companies do. Take Donald Trump’s ban on residents from several Muslim nations from entering the US. While Australia’s political leadership failed to condemn the ban, Qantas was quick to react, saying it would help any Australians with dual citizenships who had been affected by it, either refunding their flight costs or flying them home.
And while politicians have tied themselves in knots trying to demonstrate that they are neither in favour of nor opposed to gay marriage, a huge number of significant Australian businesses publicly support marriage equality, including all the major banks, the big four accounting firms, Wesfarmers, Origin Energy and Coca-Cola Amatil.
To banning migrants and marriage equality, we can now add greenhouse emissions policy.
A couple weeks ago of Prime Minister Malcolm Turnbull announced that his Government is planning to subsidise the construction of clean coal power stations to make electricity more secure and affordable.
Rising power prices have become a hot-button issue for both businesses and consumers alike.
Adding to scepticism about renewable energy has been the experience of South Australians over the past year or two. South Australia leads the nation in renewable energy generation with about two-fifths of its power produced by wind and solar. But there are times when there simply isn’t enough power to meet demand.
Last Wednesday was one of those days. As the temperature in Adelaide hovered about 40C at 6.30pm, power was cut to more than 40,000 homes for more than half an hour.
So Turnbull’s push for more coal generation hasn’t caused too much of a stir in Australia, despite concerns about how carbon emissions will be reduced to meet the country’s commitment to the Paris Agreement.
However, the power generation companies who Turnbull would be relying on to build these new coal powered generators appear to want nothing to do with it.
Clean coal power stations are hugely expensive to build and they need to operate for 30 years to produce a return. That comes with a political and technological risk that power companies aren’t prepared to carry.
Neither side of politics in Australia gives any sign about doing much to reduce carbon emissions. Likewise, with Donald Trump in the White House, the chances of a more ambitious global accord are nonexistent.
But who knows how things might change in five or 10 years, let alone 30?
Likewise, technology is advancing quickly and the price of renewable power is coming down rapidly. Clean coal power is expensive and the day could soon come when wind or solar energy can be produced more cheaply.
In fact, one of the main reasons coal power is currently cheaper than renewable power is that existing coal power stations have already been built and paid for. If they were starting from scratch, they would be far less competitive.
All this means that energy companies don’t want to build new power stations when there is a risk of them becoming stranded assets that don’t produce a return and no one wants to buy.
Origin Energy, which owns the 2880MW Eraring black coal power station in NSW, doesn’t plan to build new power stations, saying it plans to close the Eraring power station in the early 2030s.
Likewise AGL Energy, which owns large coal-fired power stations in Victoria and NSW, has a Greenhouse Gas Policy, which states: “AGL will not build, finance or acquire new conventional coal-fired power stations in Australia (ie without carbon capture and storage). AGL will not extend the operating life of any of its existing coal-fired power stations.”
The company has said that this policy has not changed, despite the Government’s power statement a couple of weeks ago. Instead, AGL will build some modern gas-fired plants that can be quickly turned on and off to top up supply.
In the meantime, AGL has the best of both worlds. It is preparing for the future by increasing the amount of wind and solar power it produces and deciding to let its existing coal plants eventually run down.
At the same time, Australia’s long, hot summer has driven up energy prices and the profits AGL is earning from existing coal plants.
The company said earnings for the first six months of 2016-17 excluding one-off items and the value of derivative contracts climbed 4 per cent to A$389 million ($414.9m). As a result, the first-half dividend of 41c is up 28 per cent and the company expects a full-year profit of close to A$800m.
These are great results for AGL but the company knows that, longer term, its future lies in renewables.
Thus while politicians argue and dither over climate policy, technology and markets will take the lead in the march towards green power.