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90% of Australian coal plants rated ‘at risk’ in stranded asset report

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As debate reignites over the economic and environmental viability of developing new mega-coal mine projects in Queensland’s Galilee Basin, a new report out of Oxford University has identified the world’s coal-fired power stations most at risk of becoming ‘stranded assets’. On many levels, the result is not good news for Australia.

The Stranded Assets Programme report, released on Friday by Oxford’s Smith School of Enterprise and the Environment, identifies the world’s least efficient and most polluting ‘subcritical’ coal-fired power stations.

It offers the information gathered in the 70-page report as advice for policy-makers concerned about economics and climate, and as more evidence in a “strong case” for financial institutions to evaluate the risk of investing in the companies that hold these assets, and then to “screen, engage, or divest.”

As the report tells us, subcritical coal is the least efficient and most polluting form of coal-fired generation, with the average subcritical coal-fired power station (SCPS) emitting 75 per cent more carbon pollution than an average advanced ultracritical – the most up-to-date form of coal-fired power station – and using 67 per cent more water to generate the same amount of energy.

“Subcritical plants are typically older and more expensive to operate,” said Ben Caldecott, lead author of the report and Director of the Stranded Assets Programme.

“Consequently, closing these plants down may represent a sound choice for budget-constrained policymakers looking for cost-effective ways of tackling pollution.”

(Remember that, according to IEA estimates, to limit global emissions to a level consistent with a 2°C future, it will be necessary to close around a quarter of all subcritical coal-fired power stations worldwide by 2020.)

It is food for thought for Australia, then, that the Oxford report has declared it owner of “by far” the most carbon-intensive sub-critical fleet in the world (followed by India and Indonesia), with a whopping 90 per cent of its total 29GW of coal-fired generation capacity coming from 23 subcritical plants.

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As the table below shows, 82 per cent of Australia’s subcritical coal-fired generation is also more than 15 years old, while nearly 20 per cent of it is older than 35 years.

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Further, the research shows that Australia is home 21 companies with subcritical coal power station assets, four of which rank in the top 100 companies with the largest SCPS holdings – half of which are government owned.

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Of Australia’s big gentailers, AGL Energy is the only one to crack the top 20, ranking number 19 in the world’s largest SCPC portfolios – by generation – from just four aging plants.

This will not come as a surprise to RenewEconomy readers, who will recall that AGL has in recent years gone from being the greenest of Australia’s big power retailers, with the lowest emissions intensity, to the biggest owner of heavy-emitting coal-fired generation in the country, after buying 4.6GW of coal-fired generators in the Hunter Valley and the 2.2GW Loy Yang A brown coal generator in Victoria – Australia’s biggest single greenhouse gas emitter.

Perhaps even more worrying for Australia, though, is the state of things in China and India; two of the biggest markets for Australian coal exports, and in particular for the huge amounts of poor quality coal that would be dug up and shipped out from the proposed Galilee mines.

“The outlook for the Chinese SCPS fleet is poor,” says the report, with regulatory regimes around coal-fired power generation tightening, both for emissions and for water use.

“Given the young age of Chinese SCPSs and enormous size of the SCPS s tock in northeastern China, this may well create a significant number of stranded SCPS assets through forced closure and impairment of profitability,” it says.

In India, meanwhile, the report points to the serious and worsening water-related risks that threaten its SCPS fleet, with 33 per cent of generators currently located in areas of extremely high water stress.

Since 2010, the report notes, “water scarcity has forced significant plant suspensions, which greatly impact plant profitability and lead to rolling blackouts.”

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  • http://www.solarshare.com.au Steve O’Connor

    Nice article – are you able to provide a link to the report?

    • john

      Steve try this

      http://www.smithschool.ox.ac.uk/research-programmes/stranded-assets/SAP-divestment-report-final.pdf

      any enquires email:

      ben.caldecott@smithschool.ox.ac.uk

      As to Au yes we do have some very poor brown coal gen sets that are not exactly best practise.
      The downturn in peak price for dispatched energy to the Eastern Grid has resulted in the unprofitability of Gen Sets.
      I will post graph to show this in later post.
      The unrelenting result of using more efficient appliances and RE as well as downturn in demand by industry has resulted in the Eastern Seaboard of Australia having a very good distribution system, huge amount of generating capacity and no damb sales to support it.
      This has been witnessed in every western economy from the late 90’s to now.
      The old demand graphs were up during the day then fell off towards evening.
      The demand graphs now show a small peak in the morning a hollowing out during the day and the real peak at about 1800 to 1900.
      Just wait till storage gets rid of the real peak.
      Now we do have a problem we have a lot of money tied up in gen sets that are no longer making a good profit and a grid that unless several big systems fail is not exactly going to be needed to carry a huge load.
      What to do?
      The proactive and sensible action would be to get into distributed energy micro grids yes tied to the grid get into storage and supply it to the users so you still have a business plan.
      We are witness to a simular situation to the Telephone and Post Office model where technological advances have changed their business completely.
      Are we up to this challenge; I think Australians are able to grasp the picture and realise than we can still deliver power to your home at the same price across the state without subsidy; as is happening now to a huge degree because we did not have the technology that is available now; not 20 years ago, when we did have PV and Wind but was a bit expensive.
      Caveat:: most of the grid I think is owned by State Governments so they have a over capitalised network that is expecting a 10% return on Capex with a falling amount of energy being transmitted.
      You may notice that the transmission part of your bill is the fastest part rising on your 3 month bill.
      Perhaps the above explains it.
      Frankly they have to write down the capital value of the expend as it proved to be a ill judged investment due to myopic vision when it was commissioned.

      Actually RE was available in the late 1970s but expensive.
      As to wind yes it has plummeted in price are we using it; other than a few poultry spots in SA Vic and Tas. or ok an a few unsightly places in NSW.
      Mind all along the south coast of Australia Wind should be utilised to the max.
      When the biggest privately owned power supply company in the USA and the two biggest in Germany both have the same business plan going forward that tells us something.
      They both have the idea of shutting down the gen sets get into micro and storage and reap the dividends of providing consumer both small and large with personalised solutions with RE and Storage.

      • nakedChimp

        they’ll come around.. sooner or later, it’s stubborn momentum that doesn’t want to accept change. And all those linesman should be needed to install all that RE at some point and maintain it.

  • Connor Moran

    I recall the Greens offered to effectively purchase and close Hazelwood as part of the carbon pricing scheme compensation. Maybe they should have taken it!

    • Barri Mundee

      No I believe it was Labor who made such an offer but I think they could see the Coal-alition would win the forthcoming election and demanded unacceptably high prices to close. The Greens policy is to close them without compensation I understand. Whilst I agree with the sentiment it would be like a red rag to a bull and I don’t think it is practical or wise to do so.

      • john

        I am hearing you about compensation.
        We are faced with a situation where some privatised assets are no longer able to make the profits they need.
        We are faced with a network where we over spent however as a responsible electorate we must take the best path and do the correct thing ok.
        I believe the best course of action is deliver the best cost to everyone as possible and I also believe we must compensate those who were untowardly led into bad business decisions because of our bad information to them at that time.
        It is possible one may argue that is their fault however perhaps I need persuading on that point.

        • Jodie Green

          I fnd this interesting. Now that there seems to be a critical mass of ‘stranded asset’ type reports in the public sphere, it would seem that new fossil fuel, and especially coal related projects, should not ever be compensated – from now on – if they stall or fail.

          When I look at Galilee and other new mines I wonder how many new fossil fuel projects are mainly setting themselves up to get into a position of scooping up compensation and free investor money while its still there now, and also down the line when government bailouts will be even more compelling than now.

          These projects will be paid for by us at least twice – government subsidies now and later when they stall, plus massive financial industries support using our money, (which can be made to vanish – its happened before). Not to mention ‘externalities’.

          Existing coal and gas businesses, sure, compensation is very debatable – its not a new threat they face, but free energy on this new massive scale is new – but lets not splurge compensation to the companies running these businesses as such, no, it should go to the people affected, sure, eg via existing welfare, just as the rest of us have to access, and farmers. But add in something like extenuating circumstances, eg drought and community assistance? It should be a positive move, not tardy and not stingy.

          All just my opinion, not being in the industry. Its really great to read from people closer in the industry, and thankyou for sharing. Jodie

          • mike flanagan

            Some very good observations there Jodie.
            Galilee is running into some serious headwinds. Adani has been refused finance from the State Bank of India ($1 Billion) for this project. The original loan application appears to have been leveraged on the Newman Governments commitment to be part financiers for the railway from Abbott Point to the mine site.
            The Palaszczuk government’s decision to closed down this fraudulent subsidy to the Adani group has brought into questions, of stranded assets, and distressed balance sheets being supported by weakening cash flows. In addition the added costs associated with the new demands by the government in relation to the placement of dredge spoil must be impacting potential financiers risk analysis of the project.
            350.0rg and overnight UN statements on divestment together with the statement of Kerry (US State Secretary) must be impacted on any potential leader of a loan syndicate, particularly after Deautche Bank made it clear they were unprepared to offer finance for this project. If the Adani project should collapse it places extreme pressure on the progress of the GVK project and will be a fillip to the preservation of the GBR

        • mike flanagan

          With the analytic resources of the multinationals who thought they were on a financial winner, and presumed they could protect their assets against their undoubted knowledge and understanding of the risks to their assets of the implication of climate change, I would suggest caveat emptor should be the legal principle to apply.

      • Connor Moran

        Something about $2b is in the back of my mind, but yes perhaps that was the ALP. Whether it was or wasn’t, I’m pleased the line has hardened now; no compensation with the next iteration of carbon pricing.

  • john

    The graph to show why Gen Sets are not making money on the Eastern Grid

  • john

    Look at the graph
    What it shows is no more huge peaks where gens sets made the money in only a few hours or a few days a whole years profit was made.
    Now what has happened no more huge demand allowing large profit but lower prices between peak and base price.
    The result has been a narrowing between the two so that Gen Sets can idle along covering costs.

    • Barri Mundee

      When I worked in the industry before wind and solar has significant impact, the brown coal generators would make a motza on hot days. On such days the gas peaker plants would run flat out, taking advantage of high spot prices, Those days are gone and the gas peakers now rarely run.

      • john

        Berri exactly as I point out in my post below this.

  • david_fta

    Closing these plants will free up lots of water for other uses, such as growing food or even sustaining river environmental health (environmental flows).

    That’s got to be Good News in anyone’s language.

  • Ken Dyer

    Unfortunately, when Victoria privatised its power generation back in the 90’s, another neoliberal policy decision, the then Liberal Government abrogated its responsibiility by failing to take into account the loss of control 20 years on of being able to retire old polluting power stations. Now companies like AGL will run them into the ground unless forced to retire them.
    This is just another reason why it is imperative that NSW reject the privatisation of their energy producing assets just as Queensland did.

    • Barri Mundee

      As one worked in the power industry until recently I agree with you Ken. Under the former SECV, the brown coal fuelled Hazelwood Power Station (HPS) would have been decommissioned by now, although probably replaced with a slightly less emissions intensity brown coal station. HPS is fully depreciated and will probably run until no longer economic.

      • john

        Berri as one who worked in the industry your input is very important.
        You would be totally across the changed structure of the industry.
        Tell us how you see it please.

        • Barri Mundee

          The Latrobe Valley’s economic dependence on the power industry was huge at one time especially under the former SECV. But by and large it was a benevolent albeit paternalistic employer which provided a lot of “social jobs” as well as large apprentice, technician, commerce and engineering training programs.

          Privatisation began with a lot of costs were wrung out of the power stations and support services such has maintenance, via attractive voluntary redundancies. The next stage was corporatisation where a power station and mine entity became a profit centre and they were encouraged to further cut costs, The lure was that the process would stop at this stage but full privatisation was always the ultimate goal.

          The Latrobe Valley was economically devastated by privatisation, unsurprisingly when so many jobs disappeared in very short time frames. Some who accepted redundancy were financially naive and expected to pick up new jobs quite easily but this did not happen. They had to move away from the area to find a new job and as a result house prices in the central LV city of Morwell fell as low as $20,000. Some very serious social impacts became apparent due to high unemployment. Yet the people of the LV were not assisted or compensated by the then Kennett LNP government, despite promises to do so and the high price reaped for the power assets. The Loy Yang A power complex was sold at a price that assumed a large rise in power prices by its new (US) owners and they funded the purchase via high debt ratios and the banks were close to taking possession when the high prices failed to eventuate.

          The LV is arguably still suffering from the loss of jobs some twenty years later with the town of Traralgon now the most prosperous as businesses gravitated to it and this became a flood, The other towns of Morwell and Moe are now much poorer than Traralgon.

          The future of the area is still in some doubt. Some have called for the construction of a new brown coal station but I believe this not only should not happen but will not happen. The former LNP state government tantalised the community with regular announcements of imminent new industry which would use brown coal, including for urea and brown coal drying technology to export the dried product to India. (Brown coal is a very poor coal with some 65% moisture- it is mostly water- and that means it emits very high CO2) though there are hundreds of years of supply and it is accessible using open cut mining so costs of miming are low. The abundance of the resource used to be seen a blessing but it now a curse as the impulse to dig it up and burn it seems irresistible.
          For what it is worth, I think there is NO future in brown coal- unless CCS can become cost-effective. The LV needs to re-invent itself and embrace a new future, hopefully manufacturing renewable technology. Whatever, governments should assist in exploring and funding the options as they wont happen by themselves.

          • john

            The costs as you outline so succinctly are very apparent.
            Having a very inefficient energy source of energy is only exasperated by the 21’s century technology against the 1800 century technology I fell for your community.

          • john

            However it was I agree very disagrees to put out a story about being able to export your brown coal as an export item.
            Even when this was said it was madness in the extreme and had zero market in any market world wide, it was only put out as some statement to placate those of myopic vision.
            in fact a fiction.

          • john

            The social cost is huge.
            Almost the same as some in the coal industry in QLD
            where a home worth $500 is now $180 or less
            That is thousands.

          • Coley

            Barri, exactly the same thing happened here in the UK 30/40 years ago when the Tories slashed the deep mining industries, prosperous towns became ghost towns,mass unemployment, a massive fall in house prices etc and a government that was only interested in profits for its friends in the ‘city’
            Things have slowly got better but I only hope that people in Australia will elect a government that can phase out dirty generation while trying to cushion the impact on workers in those industries, but stuff the owners and their profits.
            Regards, Coley, a miner for 20 years.

    • john

      Ken they had no idea then how the supply of energy could change.
      Do not blame them for their decisions then but now we are in a totally different situation where zero cost of energy input is changing the whole situation

      • Ken Dyer

        Thanks John, 20/20 hindsight is a wonderful thing. One can only hope that NSW takes note and does not privatise its electricity generation assets, like Queensland has, so when CO2 reduction becomes mandatory and not desirable as it is now, action can happen more quickly, than having to kowtow to corporate interests with their snouts in the taxpayer trough.

      • Smurf1976

        They may not have known the details of the change, but they certainly should have realised that power stations get old, that there’s a problem with the long term economics of gas (note all those gas peaking plants that the private companies have built) and so on. CO2 was definitely around as an issue at the time, having come to the attention of the general public in 1987-88. The SECV took the issue fairly seriously at the time it was first raised.

  • Leigh Ryan

    Now if only we had a government with the vision and the commitment to build renewable energy projects whilst closing down the old power stations and re-training their staff to work in renewable energy and they might include in that the miners who will also need re-training, it’s clear to see that this and other deceptive governments have been expecting this for a long time hence their commitment to divesting themselves of potential stranded assets and dumping the problem on the private sector, they should be jailed for this deception and private companies should be told unequivocally there will be NO compensation.

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