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The crazy push for new coal generation in Queensland

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coal-power-plant-us-150x150The Abbott government and leading business figures in northern Queensland have thrown their support behind a proposal to spend $1.8 billion on a new coal-fired generator in the region. Which might sound like a good idea, as long as you close your eyes and ears.

A $2.5 million study – supported by the state and federal governments, and championed by independent MP Bob Katter – suggests that an 800MW generator using “low quality” coal in the Galilee Basin would deliver an economic “social cost benefit gain” of $836 million.

It’s absolute bollocks, of course, and it relies on a whole host of hazy assumptions. One is for government support for a transmission line, another is for government “protection” against a future carbon price, and the other is the ability to source cheap coal from one of the giant Galilee Basin coal projects, whose development is under great doubt because of declining international coal forecasts and plunging international coal prices. And it’s hard to find anywhere in the 1,000 page (one thousand, I kid you not) report where it seriously considers the environmental negatives of such a development.

The report – North and North West Queensland Sustainable Feasibility Studies – looks at a stand-alone coal generator, and its role within a broader scheme to introduce irrigated farmland. It’s a complex and detailed report, but what stands out is the analysis on energy.

As an example, one of the biggest benefits cited in support of coal generation is its ability to add more capacity to the wholesale market and therefore bring prices down. The Queensland government did that more than a decade ago when it built new coal and gas fired generators, but doesn’t like it now that renewables are having the same impact. Extraordinarily, this report dismisses an alternative plan to include a 500MW solar project, partly because it would bring those prices down too far. In combination with rooftop solar, it says it would shift the peak to the early evening and lower prices in the afternoon.

The report suggests that the 800MW coal fired generator is intrinsically linked with the assumed development of the huge Galilee Basin, and demand from those mines for electricity, as well as a supplier of cheap coal.

It also draws in the role that a coal-fired power station, or renewable alternatives, could play in the established of irrigated farming schemes in the region. Among the scenarios considered are a smaller coal plant or a bagasse biomass plant, accompanied by wind, and a “high renewable scenario” where 500MW of wind and 500MW of solar are added.

It suggests that the economic case for wind and solar falls off dramatically, and in the case of solar could subtract more than $1 billion from the value of such a project. But is assumptions are based on a number of contestable cost estimates.

For instance, it puts the capital cost of solar PV at $2,500 a kilowatt. That’s probably about 50 per cent above most current estimates and experience. Interestingly, it is using numbers prepared by ACIL Allen which is doing the modelling for the federal government’s controversial RET Review. According to the table used for this document, ACIL Allen expects the capital cost of solar PV to remain at $2,400/kW even in 2040. Most market forecasts expect it to be a fraction of that price.

coal qld

As this graph shows, this translates into the production cost of solar being up to 50 per cent more than it would be in three years. The estimates of wind are also way above market price, at around $1,900 per kilowatt. The actual price, represented by the about to be completed Snowtown 2 project, is closer to $1,600/kW.

Even more astonishingly, the calculations “do not project entry of utility-scale solar PV in any region of the NEM prior to 2040”. Presumably their research did not extend to the discovery of the 153MW solar project currently under construction in NSW by AGL, or the 40MW being built in three projects in the ACT, not to mention numerous other projects in the pipeline. 2040 is a long, long way away to assume no solar.

It says that under all three scenarios modelled, the solar component significantly degrades the overall project NPV result – by as much as $1.2 billion under the “traditional policy” scenario, which relies on the assumption that carbon price and other environmental mechanisms are removed, and remain so for the life of the plant.

The cost assessment also flies in the face of most independent analysis that suggests coal fired generation would be far more expensive than wind energy mostly because of the high financing costs caused by carbon policy uncertainty and its environmental implications and impacts.

It is difficult imagining any financial institution lending money to such a project. Already, banks such as Deutsche Bank and HSBC are saying they will not finance the Abbot Point coal port which would take the Galilee coal. Australian bankers privately say they want nothing to do with it, and Bendigo Adelaide Bank has publicly rejected investments in coal generation.

This issue is recognised to a certain extent in the feasibility study.

“The environmental and social challenges of developing a coal-fired power station may prove to be significant barriers for some investors,” it notes.

But that’s no hurdle, though, because it suggests this could be overcome by providing government support and subsidies

“… Although the project is commercially viable in the presence of a carbon price, future very-high or unexpected carbon prices may threaten viability. If the Australian governments wished to assist in managing this carbon price risk it could consider providing some level of protection against future unexpected or very-high carbon prices for important projects through legislation, or contractual arrangements.”

And the report suggests that the government could pay for part of the $200 million plus transmission line, and that the development of a baseload coal fired power station could be linked to any sale of the Ergon Energy retail electricity business.

“A unique opportunity exists for the Queensland Government to include in the sale proposition for EEQ a right (with some degree of development obligation) to develop a base load coal-fired power station of a similar nature to the power station project.”

There are a whole lot of other issues not addressed in the report – such as what happens to a 40-year coal plant if the Galilee Basin coal mines die, where is the water sourced for cooling? And who is going to finance it?

Despite all this, the idea has the enthusiastic support of acting Prime Minister Warren Truss, even though the government is seeking to remove such support for renewables across the country.

He has also got the backing from local business and industry groups in the area, who see baseload coal as the only possible answer. But with information like this, it is a case of the ignorant being led by the uninformed.

Little wonder that the proponents of renewable generation are throwing their hands up in the air. Regional Development Australia, in a submission to the RET Review panel, pointed to more than $1 billion of wind and solar projects at risk if that policy is removed or reduced.

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  • Peter Campbell

    “…coal fired generator is intrinsically linked with the assumed
    development of the huge Galilee Basin, and demand from those mines for
    electricity…” Oh, I see, we need to dig up the coal to run the generator to power the machines that are digging up the coal to run the generator for the machines that dig up coal for the generator. That all makes sense now.

    • Ian

      When you say huge you really mean HUGE, the resources in the Galilee basin are in the order of billions of tonnes of coal. Clive Palmer’s Waratah coal is a big player in this region. How can the likes of Abbott, and the other little people in Canberra withstand such influence? If the coal miners want a power station, they will get one , what’s a little puff of carbon dioxide from an 800MW power station compared to the combustion of alpha and kevin’s corner projects coal outputs ( 3.7 billion tonnes of CO2 over the lives of these mines) see graham readfearn, planetoz, the guardian.

  • http://au.linkedin.com/in/paulmcardle/ Paul McArdle

    Giles,

    In the midst of updating the “Power Supply Schematic” market map for 2014 we’ve totalled up over 90,000MW of a diverse range of generation projects (some approved, many not yet) on someone’s drawing board.

    Many are green (wind) or golden (solar) but there’s also a lot of black, brown and red:
    http://www.marketmaps.info/2014-pss.htm

    However with the oversupply of capacity, and ongoing uncertainty (RET + carbon + other stuff) most would-be developers are just feeling blue right about now.

    Paul

  • RobS

    Crazy? It’s the best possible thing they could do, sink billions into new coal projects which will produce power at well over the cost of solar by the time the project is even half built and which will represent the iron boots which will sink the fossil utilities. We should be encouraging them to do more, hell with solar costs falling, total demand falling and solar installations in Queensland accelerating an investment like this will probably result in fossil fuel companies declaring bankruptcy before the projects construction even begins and certainly before a Kwh is ever produced. Bring it on and more like it I say.

    In reality what is going to happen is the banks will look at their analysis that assumes no utility scale solar anywhere in the country before 2040 despite some already under construction, that solar will cost more in 2040 than it does today and that completely ignores that Queensland rooftops are adding nearly 200MW of solar PV annually and growing. They will look at that analysis, laugh out loud and walk away.

    • Motorshack

      “We should be encouraging them to do more … ”

      Indeed, this is pretty much how the NVA beat us in Vietnam. The more we piled on with expensive, high-tech weaponry and extreme, long-range logistics, the harder it became to sustain the effort.

  • Beat Odermatt

    It makes as much sense as wearing safety boots whilst swimming.

  • Chris Fraser

    Are they placing their hopes to develop the whole Galilee Basin … on finding domestic demand for thermal coal ? Just one generator ? Hahahaha …

  • Tim Buckley

    Amazing – Tony Abbott stands for small government. No funding for CSIRO or ARENA research and development; no subsidies for development of low carbon emerging technologies (CEFC, RET); no environmental protection; and no right to free speech if you don’t like what he is doing to our environment (refer Abbott’s secondary boycotts legislation). But he DOES stand for no price on negative externalities (carbon pollution) and he does stand for even more fossil fuel subsidies!

    The electricity demand in Australia has been falling for five years straight,and with the inbuilt incentive of 20% retail price hikes of 2013 having an inbuilt lag as consumers respond as and when they can, Australian demand will continue to fall. Interestingly, the clean energy regulator reports Australia year-to-date in 2014 has added another 219MW of rooftop solar (taking us to 3.4GW of solar), and that is despite an inbuilt penalty to Australian taxpayers who put solar up, via the zero cents per kWh tariff that our friendly government allows Energy Australia to pay for rooftop solar in 2014.

    So electricity demand is falling, solar capacity is growing, but Abbott wants to subsidise even more expensive fossil fuel capacity. Free transmission for coal-fired capacity, but wind has to pay for its own transmission link. That’s a Liberal party definition of a level playing field!

    • Ian

      Abbott’s , or for that matter, any government in Canberra, is small compared to the vast mining and international business interests in this country. They cannot withstand those influences and will only ever be little errand boys for their big bosses. The whole idea of subsidies for renewable energy was to throw lollies at people’s climate change sensibilities while the fossil fuel mining and drilling industry was established. A couple of little solar panels and windmills would very effectively shut up any complaints about the enormous ramping up of CO2 producing coal and gas exports. Those same solar panels though have turned around and bitten government in their bottom ….line, reducing the need for government owned coal powered capacity. Poor Tony, his miners say,”keep your voters quiet”, his energy utilities say ” stem the tidal loss of our business”, his voters say ” we want our cheap solar panels” , his mates in India and China say” we want your coal and gas- at mates rates” . The poor fellow is blown to and fro like a leaf in the wind. He promises one thing and then does another.

  • Richard Mackie
  • Zvyozdochka

    As someone who works indirectly in the area of energy economics, I find it encouraging that such reports are becoming more obviously desperate.

  • Alan Baird

    Oh, I do enjoy the flow of these responses. Anybody who says that sarcasm is the lowest form of wit is a twerp. Only those with faith in the absurd could begrudge these correspondents their shot at the loonies laughably “governing Australia” plus their equally batty cheer squad. And those people with their faith in the absurd are the usual suspects, the Murdoch and Macquarie conglomerates. Unremittingly. You don’t have to be stupid, but sure does help.

  • Alen

    They are indeed getting desperate, and I can’t help myself but laugh at reports like these. Qld could learn a lot from WA, who invested heavily into FF generation and are paying hundreds of millions each year just to keep the price at a reasonable level. This plan will never eventuate, and as you mentioned obtaining investors is difficult now, imagine what it will be like in a few years, 2.

    • http://www.reneweconomy.com Giles

      Queensland pays a $620 million annual subsidy to regional households to keep their fossil fuel electricity supply at same price as south-east corner

      • Alen

        Ouch did not realize it was that much. I still do not believe it will go through, Qld is too far in debt to finance this, the federal government is (apparently) also too far in debt, coal demand is declining or estimated to decline well into future (China will have a lower demand and Indian demand is questionable and therefore I doubt the Galilee mines will ever be built.
        Then there is the coming super El nino, that will hopefully help raise awareness of the severity of GW and even if Australia fails to set meaningful targets in Paris next year, will encourage people to take stronger climate actions and seriously make politicians reconsider their view on GW if they want to continue their political career..i.e. by the time more serious considerations or planning to this power station are made the political viewpoint will be a lot less hostile to clean RE and more doubtful towards the future of FF in Australia.

  • Les Johnston

    The big unknown with coal projects is the amount of inferred transfers to those involved with decision-making. Until transparency is considered paramount, attracting international reputable finance is the second big unknown. Public policy demands the public long term interest is served not sectional private interests.