Australia’s real energy problem: Too many useless coal generators

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To read mainstream media and listen to the political rhetoric, you’d think Australia’s energy problems could be summed up like this: the country is about to install unnecessary and costly renewables in an already oversupplied market. So, it should stop doing so.

At least, that’s how the fossil fuel industry and the federal government have been spinning the story.

But the problem is actually the other way around: Australia has too many dirty coal-fired power stations that have operated way beyond their working life, and their owners are refusing to shut them down.

That is the assessment, not of environmental groups (although they would no doubt agree), but of the largest privately-owned power generation company in the country, AGL Energy.

“(About) 75 per cent of the existing thermal plant has passed its useful life,” AGL Energy economists say in a new research paper. But they note that the generator owners do not want to shut them down because it is too expensive to do so. “At present, there is around 7 GW of surplus capacity in the NEM. The system is relying upon ageing baseload coal-fired generation.”

In the world’s two biggest electricity markets – China and the US – the governments have found an effective way of getting rid of dirty old coal-fired power stations that have operated past their useful life: they have legislated against them by imposing strict emissions standards.

Australia does not even have emissions standards. Some fairly light ones were imposed and then removed when the carbon price was introduced. Now the carbon price has gone too, and if the fossil fuel generators had their way, all energy efficiency and renewable energy policies would be gone as well.

Instead, the fossil fuel generators have got their hand out for more money. They want payments for closure. In the meantime, they have pushed for Australia’s Renewable Energy Target to be wound back or scrapped altogether, so that their earnings are not affected in the meantime.2645650-3x2-940x627

The more renewable energy that is in the system, the lower the wholesale price falls. Independent analysis has shown that coal generators could earn an extra $10 billion or more if the Renewable Energy Target is scaled back or dumped.

What should be happening is that market regulators should be ensuring that coal generators are retired at the end of their normal life. This would allow renewables to compete in an even market – on a new build basis, wind and solar would likely get financing more easily than coal or gas. As the ANU’s Andrew Blakers pointed out last year, if all the fossil fuel capacity was retired at the normal time and replaced by renewables, Australia would be close enough o 100% renewables within two decades.

According to AGL Energy, Australia currently has around 7,000MW of excess baseload capacity – some of it siting around in mothballs and some of it operating at much reduced capacity. (AGL has previously said around 10,000, while the energy market operator reckons around 9,000MW, or more than one third of the current base load capacity is surplus to requirements).

The maths are simple: It doesn’t cost the coal plant owner much to put the coal-fired power station into mothballs, but it does cost a lot to close it down permanently – somewhere in the region of $100 million to $300 million.

The overcapacity is the result of what AGL Energy economists describe as “the trends arising from dynamic inconsistency and policy uncertainty.”

In short, that means that the fossil fuel generators have been so successful in playing one side of politics off against the other, that carbon pricing, renewable energy and energy efficiency policies are in a constant state of flux.

And none of the coal generators wants to be the first to exit the market, in case they miss out on a rebound in prices – when that happens. Better, instead, to gang up on wind and solar, or convince the government to come up with a new mechanism.

AGL Energy, itself, has bought an old clunker recently – the 40-year old Liddell coal generator that was part of Macquarie Generation. AGL, however, got this and the neighbouring Bayswater generator for such a good deal it effectively valued Liddell at zero. It will run the plant till the Tomago smelter is due to close in 2017, or earlier if needed. Or later if the market changes.

AGL Energy has advocated for various forms of policy changes to facilitate the exit of old coal generators – including payments for remediation, or possibly “capacity” payments, that could com in various forms.

It has argued against the “energy only” markets that have characterised the National Electricity Market, although this debate is also taking hold at international level. Most international agencies have rejected the arguments for capacity markets, describing them as another form of subsidy for fossil fuels.

AGL Energy says the mean age of brown power stations is 34.2 years, and the median age of black coal generators is 27.4 years respectively. “A number of the older coal plants are well beyond design life,” it notes.

“There are substantial costs associated with closing down a power station permanently – a cursory review of Annual Reports tends to indicate remediation costs of $100-$300 million.

“First-mover disadvantage costs are also material – economic theory (and game theory in particular) tells us that actions taken by any one supplier to reduce capacity will make competitors better off. However, it is the final identified barrier to exit which is most likely to be present within the Australian context: policy uncertainty.”

AGL Energy goes on to say: “Market participants are able to mothball plant at relatively low cost by comparison to the very high capital cost of retirement. And this is amplified given the option value associated with the plant’s potential to return to service with notice of only a few months notice.”

This is playing out in real life. The surge in gas prices is sidelining gas generators, so moth-balled plant like that at Tarong, in Queensland, is being brought back into operation. That will likely happen if renewables are sidelined by the Abbott government.

The recommendations of the Warburton review are to close the RET to new entrants altogether, or to allow renewables a maximum of 50 per cent of demand growth. Who would pick up the other 50%? Why, mothballed coal generators of course.

As AGL Energy notes, it’s not just the large-scale renewables that are a threat, but rooftop solar too.

The average embedded solar PV system size per installation grew by 0.9 kW to 3.9 kW in 2013 alone and households and businesses continue to install embedded generation at rates estimated to be around 50-60 MW per month – despite the explicit subsidies that were once in place largely having been abandoned.

Note: Interestingly, Industry minister Ian Macfarlane conceded on Tuesday that there was excess base load capacity. Environment Victoria, long an advocate of what some described as the “cash for clunkers” policy dumped by Labor, said:

“There is clearly an issue with the electricity market being oversupplied, but the Coalition is acting as though the only solution is to weaken the Renewable Energy Target, even though the RET will lower energy bills and reduce our greenhouse gas emissions.

“What the Coalition has failed to consider is that oversupply of the electricity market could be addressed by phasing out large, old, polluting coal-fired power stations, many of which are now surplus to requirements.

“In the past Governments haven’t wanted to talk about closure because they were worried about the lights going out. We now know that this is not a risk at all. We effectively have massive power stations operating and polluting unnecessarily.

“In Victoria we now have 2000 MW of excess capacity, which means that controversial and polluting power stations like Anglesea and Hazelwood could both be retired immediately with no impact on energy security.”

Greens leader Christine Milne said:

“Minister Macfarlane has said that there is a surplus of 9000 megawatts in the system and that’s why he needs to reduce renewable energy. He wants to make existing coal more viable.

“Wrong, Minister. This is the best opportunity we have to phase down coal fired power, without running any risk to energy security.

“The polluting fossil fuel sector just isn’t viable in the age of cheap, sustainable renewables, but the Abbott government is doing everything it can to protect the profits of the old industry, at the expense of new jobs in solar and wind.

“The Renewable Energy Target needs to stay as it is. There was a cross-party agreement not to touch it until 2020 so the sector could have investor confidence.


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  • Chris Fraser

    It’s getting profound if AGL economists are admitting that coal generation, more costly than renewable both in terms of capital and long term running costs, is beyond refurbishing and needs to be retired in favour of replacement renewable investment. No wonder MacGen was aquired for so little. I can almost see thought bubbles starting to light up over their heads.Could AGL economists get together with the federal government and advise them what’s really going on ?

    • JonathanMaddox

      It’s not beyond refurbishment at all. Just not necessarily economical to refurbish given the abundance of competing generation capacity, as a result of both too-high demand forecasts (which are largely thanks to efficiency measures) and renewables.

      • Chris Fraser

        In that case, we’d better make sure that we buy 100% Greenpower before we migrate to PHEVs, because that would simply encourage them to hang onto their dinosaurs a bit longer.

        • John McKeon

          It’s all beginning to look like a game of poker.
          [Go renewables and efficiency.]

          • TechinBris

            That was all the whole Big Business Game has been for quite some time. Poker.
            Someone has raised the stakes and someone else is bluffing about the worth of a hand.
            Guess who is who and wonder if one will lose gracefully, or there will be a hell of a fight to win that way.
            My money is on for the fight. There is profit in War you know. Pointless, yes. But profit is all that matters to some, and that makes them dangerously toxic.

  • Blair Donaldson

    What I don’t understand is companies like AGL not embracing renewables and putting their hand out for assistance to decommission coal-fired clunkers. Adding other services like inspections and maintenance of household solar as well as owning windfarms is surely a better long-term investment than trying to keep coal-fired generating plants online. If the combination of efficiencies and renewables will help us overshoot the 20% renewables by 2020, all the better. It should encourage us to aim higher.

    • johnnewton

      Why? Because nobody owns the sun and the wind.

      • TechinBris

        No. It is because it is energy you are not buying through them, which churns your “stuff” (for lack of a better word for it) back through their Market and finally back to the stuffmerchants who gave the stuff in the first place. If this does not happen, the pyramid game that is the stuffmarket, will have your ever increasing payments for energy coming back in to cover the fact that the stuff, which has not any physical value representing it, other than which we accept that it is and then…. well, then everyone runs for cover. Oh dear.
        If the flow for the zipstuff is slowed by your making your own energy from sunshine, the profits slow, the game smells blood……. The stuffmarket is very voracious.
        Who would have thought that freedom will come from the Sun. Of course, everything on this planet does.
        You are absolutely correct johnewton. It is “Because nobody owns the sun and the wind”.

    • Tommyk82 .

      AGL was a renewables champion at one time. They boasted about a 30% renewables generation portfolio which has been reduced to about 8% now they’ve started buying all the aging coal stations. I’m not sure what motivated the shift in direction but I’d wager it was in anticipation of changes they thought the Abbott government would bring in.

      • Blair Donaldson

        It is the same with Origin, they seemed to be very much into renewables before Greg King became the head honcho. I expect shareholders will not be to impressed if Origin and AGL is to write off some of the assets they have purchased in recent years punting that Tony Abbott would overturn the RET. Whatever happens, they are only delaying the inevitable shift to renewables and I find it strange they are not preparing for the future and getting in early.

        • Tommyk82 .

          Think about what happened with the carbon price. The majority of people and businesses were over compensated and ended up being better off as a result.

          The energy companies can bank on the fact that they’ll have their hands held every step of the way. They’ll be rewarded for closing down bad generators and they’ll be subsidized for putting in renewables. The longer they leave it, the more governments will give them as the change over becomes ever more urgent.

          I don’t think origin was ever very good with renewables, from memory, their portfolio was pitiful.

        • TechinBris

          They are worried that it will set a chain reaction into motion with their precious Market. Never forget, for it to work properly, everything, that is everything, has to be paid,bought and sold, including, well, everything, yes, including you.
          But Sun, Wind and Gravity, well who is owner of such, when we can all get it, for nothing.
          What happens, when profits can only drop for a Corporation and it can never, ever attain the power and influence it once was? Now what happens when that is the entire Market underpinning?
          Awwwww. What a shame.
          Let the Sun Shine, with it’s cleansing exposure of light, for us to see all they try to hide in the darkness, they prefer to seek to do their business.

  • John P

    Is it any wonder that so many thousands of families across rural Australia have opted to go ‘off grid’. They have a comfortable, reliable low cost lifestyle and have never looked back.

    • Ken Linder


      First off a lot of folks in those country areas also commonly used Kerosene lanterns in their homes for lighting, and that causes brain damage. They were (for a long time) stuck with ONLY getting their power from diesel generators at very high shipping rates. To them PV was a serious improvement. The fact is many of those people DID live too close to the power grid to get help from the government and could not foot the $100,000 charge to get hooked to the grid. They were stuck in limbo.

      If they were FURTHER from a main power line (the rules are pretty nasty from the homeowners perspective) their off-grid PV setup could indeed be heavily subsidized by the government, but it still cost a lot to put in and far more to maintain. Batteries die. The newer GOOD ones in use today die in about 10 years (if you are lucky).

      However those more remote location have system that were heavily subsidized by tax payers. There isn’t a free lunch. We can’t all do this. The thing is, having enough batteries to make sure you get through the
      night, really does cost a hell of a lot right now. Maybe 15 years from
      now it won’t, but this is now. Most PV systems are grid connected for
      this very reason

      These off grid folk have other things you are not including.

      They also have one other thing on those country properties. Evey one of
      them that is totally off grid also uses a backup diesel generators for
      when there isn’t enough sun.

      Diesel is a nasty dirty fuel that
      produces dangerous particulates.

      I know about diesel fumes. I grew up near a main road in logging country and that road had bumper to
      bumper diesel log trucks all year long. The air was unbreathable. South Road in
      Adelaide is like that too – form teh truck traffic.

      Now imagine a winter in Sydney,
      Adelaide, Perth or Melbourne with between 1/10th to 1/5th of the houses in
      that entire city (the current number who have PV) and *all* of them are off grid
      and are running diesel generators all winter long!

      Just becasue we are a
      nation that (insanely enough) has no emission standards (and oddly enough massive asthma issues) at all does not
      mean we want air like they have in China’s cities.

      Biodeisel is not a real world answer
      (it takes way too much land to make it). LPD gennies are hard to find.
      Coconut oil is great fuel for diesel (your engines last longer) but it
      has to be warm enough to move and it must be bought in massive
      quantities & stored to make it worth
      while financially and then it ALSO must be filtered (DIY). This takes
      ability, knowledge cash up front and a lot of space.


      They also have to live very differently; in ways that so not fit in with city living. They must arrange their lives around sun power being there (filling water tanks, doing laundry, using the computer, etc). This tends to mean STAYING HOME a lot in the day, to grab power when it is there and NOT having every member of the house gone 10 hours out of every weekday/workday – as this happens to be the one time of dat where there is sunlight around. Some person in the family must be home to take advantage of the power – and this often means that you can’t have two adults working outside of the house.

      ** A BETTER CHOICE **
      ** FOR BIG MONEY **

      The best choice is a new smart energy management system that has “ISLANDING”. I’ll explian why you want this – as you need to understand what most people are unaware of – the what on grid PV does in a power outage.

      — comparisons – —

      * OFF GRID

      In an off grid PV system a diesel generator system is often used to
      keep the batteries up when the sun power is low (that way it kicks on
      and off at need).

      * What we tend to think of

      In an outage, we think of emergency generator systems (like at a hospital) and these disconnect the place from the grid and then automatically start up the generator. Then when power comes back on they turn off again.

      * Home on-grid PV

      A home on-grid PV system is set up so that when the power goes out, the PV stops working! It does not just isolate your home and use power as it is made. It does this to protect the people working on the grid (they could have put in an isolating circuit instead as standard for very little, and did not). So even though it is 45C and 2PM, you have no power…Idiocy.

      — to get around this stupidity —

      In the past to get around this you had to get av highly competent specialists who knew how to use stock parts to do the thing you wanted. They are hard to find and expensive to hire.

      These new smarter systems are made so you don’t need to hire an electrical engineer to design you something (or have them buy a lot of odds and ends) just to get “islanding” and a grid (and perhaps batteries) to work together.

      These new “all in one solutions” require that consumers and installers have a lot less knowledge. They come in two varieties :

      1) Chinese, inexpensive(under $2000 usually), and cheap, dangerous – and not Aussie safety rated so NOBODY is going to EVER put one between you and the grid. You could net get you grid-connect system certified with one.


      For instance the Bosch BPT-S 5 is for a 5KWh system. That is the max it handles so if you need more than that you are out of luck. It also goes for about $17,680.00 retail (real world) not including installation or the fact you will need to coinstanty replace its lithium batteries and they cost 2/3 to 3/4 of the cost of the item.

      • John P

        Kerosene lanterns! Not really.
        Although solar PV is a post war development, many farmers prewar used wind turbines (Dunlites and Quirks) operating at 32 volts and had electric light all running at 32 volt as well as a range of 32v appliances – all running from batteries.
        Then we got PV which, at $10/watt, was expensive and a genset was a good budgetary decision to cover the ‘down’ period in winter. Now that PV is down to around $1/w, we can consider designing an all PV setup where the cost of the genset and charger can be allocated to more modules. In this configuration, it is reasonable to expect that most of the year can be covered and if a bleak period persists, some sensible demand management options can be employed.
        We no longer need the “useless coal generators”.
        Governments colluding with big polluters to keep up their profitability is not a good look.

        • Blair Donaldson

          “Governments colluding with big polluters to keep up their profitability is not a good look.”

          Exactly, and that message needs to be promoted long and hard to shame the science denialists at state and federal level into reversing their opposition to the RET.

          • joidie


  • Brian Innes

    RET Review in a Nutshell..
    “When you ask a couple of old boilers whether they think that our energy infrastructure should be replaced with newer, cleaner and cheaper technologies it is hardly surprising that they come out in support of keeping the existing old boilers”

  • Andrew Woodroffe

    People can be employed rehabilitating decommissioned old coal power stations and mines instead of being employed to run them. There will still be jobs in these places (Collie, Rockhampton, Hunter Valley, La Trobe), just different jobs.

    • Tommyk82 .

      Good point Andrew, there’s also similar jobs in solar thermal plants since they can still use steam turbines

  • taiyoo

    Given one of the core mechanisms of the Coalition’s Direct Action Plan is paying generators to stop polluting there is no surprise the excess 7, 9 or 10GW of coal fired power stations are unwilling to close. It would be interesting to know what it would cost under the DAP to retire all this unneeded excess capacity.

  • Jason

    I think I hear someone with their hands out for a few billion in tax payer cash!

    • TechinBris

      Of course you are. Hypocritical isn’t it?
      These are the very Corporations that are promoting the mantra that any Social Welfare is bad as it distorts Markets, then give large donations to the Political Party that will get rid of it.
      It gives people a lifeline from having no choice but to accept their extortionate behaviour against starvation and homelessness of our families. It also offers protection against their Dog eat Dog value systems, rendering them less effective in coercing people to accept their “take it or leave it” approach or die, because our Society decided it is inhumane to do such and was not going to make Australians suffer, just so someone can profit more at everyone else’s expense.
      But that all changes when it comes to their precious Market values, which demands only ever growing profits with their demands all that profits must be privatised (because it is better and more efficient…for them), but they will demand and will try to force us, even buy the outcome (buy political favour), which will be cheaper for the Shareholders, in order to socialise most of the losses. It is petulance at its best, and typical of the brutal, yet childish mentality that pervades the system.
      I think I can make a safe bet that the Taxpayer will have to decommission and remediate the old Power Station sites, because of something the current Energy Corporation does, to escape having to pay those costs (as that is not profit).
      I am not surprised to see that demand in the advocation for them not having to clean up after their profit making.

      • John P

        Yes. That – billions of taxpayer dollars to close down – was at the heart of Kevin’s CPRS so the big three would have been disappointed when it was knocked back by the Greens.

        • TechinBris

          There was a number of things in that CPRS package that were not quite right. Was Kevin trying to use a carrot on a stick, bribing or he was already offered something, some way, to offer the Taxypayers to pick up the tab……….yet again.
          I must admit, I am getting tired, like most likely like everyone else, at having to fix up the mess made by Corporations after they can no longer wring a buck out of whatever it is, only for us to have to clean up after them, because they generally won’t do it unless forced to and we are too gutless to force them to clean the mess up themselves.
          Do they find it cheaper to do the like of what Murdoch does and distort democracies in order to get out of cleaning up their mess? Are the Taxpayers their Maid and Cleaners of their house. Most likely.

          • John P

            These days, no matter whom we vote for, we always get an administration with commitments to look after business along with the assumption that the ‘trickle down’ effect will benefit the rest of us. So it was with the CPRS.
            In Victoria, the electricity assets were sold off to private interests in the nineties, a time when the private owners would have been well aware that a carbon price was certain sooner or later. That is, they bought in when they knew there was a risk of a downgrade. Perhaps they also had reason to believe they would be ‘looked after’ in such an event.
            And so it has turned out.

          • TechinBris

            We also got burned out by bushfires because of that process.

  • Tommyk82 .

    The clear point is that old generators are reluctant to give up their assets and perhaps more importantly give up their slice of market share if it would be unlikely they’d be allowed to build something new. The decommissioning process could include a guaranteed tender for a renewables based project of the same capacity. I’d prefer that to pay outs.

  • Michael Doherty

    Giles, can you point us to the paper? I can’t seem to find it on AGLs enormous and unwieldy blog site.

  • David
  • david H

    Giles, I am pleased to see that you have picked up on the “direct action” implemented by the US and China to get rid of old polluting power stations by tightening the legislation.
    What I have seen recently here is the EPA imposing stringent emission requirements on small solid fuel fired boiler for industry but doing nothing to impose the same requirements on the large coal fired power stations.