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Liddell coal plant fails on cost, as well as reliability and emissions

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Bayswater_Power_Station_with_coalFlickr

Bayswater Power Station. Source: Flickr

Tell the truth.

Tell me who’s been fooling you?

Tell the truth.

Who’s been fooling who?”

Dereck & the Dominos

The key points of this note are blindingly obvious:

  1. Keeping Liddell open will possibly make electricity prices higher and electricity less reliable.  The fuel/coal cost alone of coal fired electricity in NSW is over $60 MWh and may increase. That is before we get to a carbon cost. Anyone building a 40 year life coal plant that doesn’t take carbon into account would be basically unfit to be in management or alternatively be interested only in very short term gains.
  2. Anyone who promises that they are going to make power prices fall and simultaneously increase reliability should be looked at with suspicion. Without sharply lower gas or coal prices or a vast increase in renewable supply backed up by presently expensive firming capacity there is no way to get a sharp reduction in power prices.
  3. There are only five – count them: Bayswater, Eraring, Mt Piper, Vales Point and Liddell – coal power stations running NSW, and at least two of them have issues. Mt Piper, for instance, has a material issue with coal supply that stems back to when the NSW government abandoned the Cobbora development. Liddell is a dog at the end of its life. Eraring does not have much coal supply, again this is because Cobbora was abandoned (by a Liberal government, as it happens. But does that matter?).  These problems have been known about for many years, but the endless process of “kicking the can down the road” risks burning NSW voters – big time.
  4. New PV and wind supply can EASILY be built over the next five years. Almost everything to build the supply, except possibly some more transmission is already in place. The cost of this generation is falling.
  5. The best way to firm up wind and solar PV in NSW remains up in the air:  A combination of open cycle (polluting) gas, demand response and behind the meter batteries is one solution.  A large flexible combined cycle gas plant is another. Pumped hydro, but not Snowy 2, could possibly be built in time.

AGL has strong options to firm up wind and PV from its own portfolio. For instance it could use contracts with LYA or Macgen or its own 750 MW of hydro. AGL’s hydro has limited energy supply. In part two of this note we will show a “firmed up” renewable generator to replace Liddell.

Liddell’s fuel cost likely over $70 MWh by 2022

AGL’s investor day in November 2016 contained a slide on what we think is NEM wide coal costs expressed as $MWh…

BlackCoalAGL

The same presentation showed that AGL’s contracted coal position by 2019 is a fraction under 9 million tonnes, and at that time contracted coal volumes were less than requirements, so some spot buying. The contracted position(at the old price) will continue to fall away raising AGL’s average cost.

AGLcontracts

We anticipate that by 2022 the contracted cost of coal could easily be 20% higher than today and further that the more coal AGL takes under its contracts the higher the contract price will be. Even so it will have to contract further.

Newcastle export thermal coal prices are around US$85/t now and five year average is around US$77/t. The export price is very dependent on demand from China.

Demand from China largely depends on policy towards local coal consumption and electricity demand. Electricity demand in China is up this year for the first time in 3 years. We see that as a blip in a longer term trend of China sharply reducing its electricity intensity (electricity consumed per unit of GDP).

Newcastle

NSW steaming coal runs at about 20 per cent ash content whereas export coal is at 14 per cent. All things considered, we think a reasonable re-contracting price in 2017 is around US$65/t real. Say $US73/t in 2022 or maybe a $US75/t average over the five years to 2027. Our estimate is right in line with Newcastle thermal coal futures which are at $US76/t for 2022.

That’s around $A100/t. Liddell uses 0.42/t coal per MWh of production putting the coal cost at $42/t but then there is transport and other overhead  cost to add. Liddell gets most of its coal by conveyors which have low running costs relative to rail.

We are missing a few bits but  still we think all up coal costs by 2022 of Liddell will be over $A70/MWh and could be higher.

Capital investment?

There are various reports of the capital investment required at Liddell. We are going to use $300 million. We are going to ignore the estimated future closure costs of Liddell but we note that in dollars of the day the combined liability of Liddell/Bayswater is over $800 million ($500 million in NPV terms).

We also note that the shared liability, the shared conveyor system, the shared coal contracts, make separating Bayswater and Liddell a lot less easy than standing up in Parliament and issuing a “command economy” decree.

Fixed operating costs

Total employment at Bayswater and Liddell is about 600 and we think a working estimate for Liddell is 250-300. If we work at total employment costs per FTE of say $A150,000 (likely on the low side) or around $A37 million and add in other overheads we can easily see total overheads per year of around $70 million.

On those numbers around $87/MWh is needed. However the IRR is hugely sensitive to the price assumption. We have no confidence in those numbers, we just wanted to use them as background.

If they are half correct, the Liddell extension will lose money if the futures price of $72/MWh for 2021 turns out to be the correct number. We expect the cash fuel/coal cost to be around $70/MWh.

Liddell table

No futures prices in 2022 but $76 MWh is not enough for dispatchable generation

Baseload futures are in “backwardation”, meaning that the market expects the price in future to be less than today. That itself is a negative for investment. However, the more important point is that $72 MWh indication for 2021 is not enough to justify new plant. It might be enough for wind or PV alone but no way could you also justify the required firming capacity for  that price.BaseloadFutures

Replacing Liddell with 1200 MW combined cycle gas

ORG’s Darling Downs combined cycle plant in QLD cost around $700 million for 630 MW and takes about 40 PJ of gas per year if run hard. Using that as an example a 1200 MW gas station complex in NSW, almost certainly not on the  Liddell Site would take around 80PJ of gas per year or 1600 PJ over 20 years. The capital outlay would probably be around $1.5 bn.

The only realistic source of gas for this at the moment is  imported LNG from AGL’s proposed Cribb Point terminal. That terminal which has a land side cost of say $250 m could import 100 PJ of gas per year.

We suspect that this has been in the back of AGL’s mind for some time, but that now AGL will be forced to accelerate its plans after being pressured by  the ham fisted Federal Govt.

Also we very much doubt that AGL planned to build 100o or 1200 MW. It’s a big risk.

Right now the gas would cost around $9 GJ making the electricity production cost over $100 MWh but if the oil price goes up that cost could conceivably rise to $150 MWh.

Modern combined cycle plants can reach full power output within 1 hour and 60% of output in 20 minutes

This combined plant could be backed up by a more modern smaller gas plant such as  Panda’s  US$1 BN “Flex Plant” Temple, Central Texas. According to the marketing blurb

Built on a 250-acre former sunflower field, the 758-MW facility is the first Flex Plant in Texas. As one of the cleanest natural gas-fired plants in the U.S. fleet the facility operates at 57.5% overall efficiency and can syrnchronize to the grid in ten minutes, reach an emissions-compliant 60% basedload in 20 minutes and arrive at full power in an hour

TempleTXplant

Of course the irony is that this plant, despite very low USA gas prices, went broke within 3 years, due to even lower electricity prices in Texas (and too much debt).

And that’s the problem with investment in gas plant in Australia. The electricity has high marginal fuel costs and the plant takes time to build.

Look out for the real answer in Part 2 of this story when we will examine the case for a dispatachable, largely renewables, based alternative to Liddell.

Read How to replace Liddell with a dispatchable renewable energy plant online now.  

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  • thanks David – will read part 2 with interest.

  • The Awul Truth

    David that’s interesting – given these fuel costs unless we get a lot more renewables it would seem that the futures backwardation is a bit overoptimistic on price declines. Looks a lot like the iron ore market where forced hedging by producers creates a risk premium for speculators.

  • Peter F

    Excellent work again,
    Reciprocating plants although less efficient are cheaper and quicker to build and much faster 70-200 seconds from zero to full load. They are modular so you can just add 10-20MW at a time (or multiple 10-20 MW units) depending on 12 month ahead demand forecasts, battery technology improvements, demand response take-up etc etc
    This is the approach AGL is taking with the upgrade at TIPS

    • Alex Hromas

      Reciprocating plant has not been popular with Australian utilities for reasons that are not clear to me. My experience with spark ignition gas engines is at the 200kW end of the business and their maintenance requirements are high, spark plug replacement and turbocharger burnout being the most common problems. They are all the rage in Texas where they are called wind chasers their utilisation has been low as the wind resource there has been very good

  • Rod

    I got this response in a discussion on a forum so can’t vouch for accuracy 😉

    “Apparently, the deal under which AGL took over Liddell included legacy
    coal contracts (which lapse around 2022) at $10 per ton. It’s crap,
    non-export quality coal as well. And transport costs have to be pretty
    low as well as its delivered via conveyor-belt, so nearby.”

    PS That efficiency for that unit is pretty impressive.

    • Wouldn’t surprise, but those legacy supplies are running out

      • Rod

        Another reason for them to get out by 2022

  • Chris Fraser

    Backwardation appears to have an even greater effect when in the near future, with the benefit of newer technologies, we should have magnitude reductions in chemical storage LCOE costs. All this discussion about including coal in the mix could very well be turned on its head.

  • BushAxe

    How much of the replacement capacity depends on the future of the Tamago aluminium plant? Another good article again David, is there any chance you could give us an idea of what the current CCGT’s production costs are for comparison?

    • solarguy

      That’s Tomago old mate.

      • BushAxe

        Lol, Egg aluminium plant then if we were Japanese!

  • Nick Thiwerspoon

    An excellent piece, i’faith.

  • Tom

    Shouldn’t you subtract transportation costs? Liddell isn’t going to import coal from overseas.

  • David McKay

    Maybe build a CCGT plant in an area of high solar resource like Moree? Gas supply? This would allow solar steam boosting on a large scale with something at the lower end of the CSP cost scale like Fresnel. Liddell has 2 solar boosters (both Fresnel but differing designs) however, the resource is not that great & the systems are small for boiler feed water pre-heat. We should not be in this position after 6 years of Labor + 4 years of LNP + 5 years to Liddell closure. 15 odd years & we have a crisis.

    • solarguy

      I live an hours drive from Liddell and the solar resource is quite ok there. A CST plant there, would be just as good if not better than Port Augusta, to reckoning.

      • BushAxe

        Doubt it, Port Augusta’s on the edge of a desert.

      • David McKay

        I also live an hours drive from Liddell & was involved in building the original SHP booster at Liddell. Having now been involved in a Port Augusta proposal I would take PA as a location any day. Superior resource + more clear days, etc.

        • solarguy

          Just been on the BOM website and PA is a pooftenth ahead for annual solar exposure, so you were saying………………

          • David McKay

            I was saying PA is better. Cloud cover, etc, plays a part at Liddell. There will be a growing number of CSP projects in PA, for a number of reasons.

          • solarguy

            David, as I said PA is only slightly ahead on annual solar exposure…….. that means a very similar number of cloudy days compared to sunny days as PA.. After all PA is not the best place for CST, when you consider latitudes further north, such as Moree, Alice Springs and central QLD. But it will obviously work fine at PA as well as Liddell.

            Keep in mind the storage, which is the key component.

          • David McKay

            I do agree that Storage is the only real value in CSP for power, otherwise just build PV.

          • solarguy

            But to be effective PV needs storage too!

          • David McKay

            My point was that in non storage solar power plants (& plenty of these projects are being built) PV is a clear winner. To allow the transition to continue, wind & all solar clearly need storage or an economical form of back-up. Storage roll out is one of the next market surges.

      • Paul Wittwer

        Using BOM climate data Port Augusta west had 10.4% higher solar exposure over the last 10 years. http://www.bom.gov.au/climate/data/index.shtml?bookmark=203 Added to that advantage is the low cost of land compared to Liddell which I didn’t go into because it’s too obvious.

        • solarguy

          Look I don’t know about how you arrived at 10.4%, but it is irrelevant. I’m not saying that we should scrap PA for Liddell, but there is no reason that Liddell can’t have a CST Plant there if it were economically feasible as there is stuff all difference between the two locations really.

          Hope you’ve got that.

          • Paul Wittwer

            You argued that a CST plant at Liddell would be just as good if not better than Port Augusta. You were wrong. Hope you’ve got that.

            Doesn’t mean one can’t have much more CST at Liddell as the electricity infrastructure should be made good use of but Port Augusta is quite a bit better for reasons already outlined plus heavy electricity infrastructure plus very good wind resource plus quite good prospects for pumped hydro.

          • solarguy

            Wrong, according to who, you! Mate quite a bit better is a stretch to far, I would say! For any little deficit that Liddell or any surrounding area would have compared to PA, smart arse, can be made up for with a small increase in collector area FYI and perhaps a bit more storage. As for wind we weren’t talking about that resource at all were we, NO!

            Pumped Hydro can be anywhere any way, so you argument is mute on that score sweet heart.

            By the way how do you define cloudy days. Partly cloudy, overcast……………..ummmm.

            You can be as pedantic as much as you like, but it means f%*k all, when there’s nothing much between the two sites.

            Get a grip!

          • Paul Wittwer

            Being abusive helps your case so much as it’s so factual. You of all people here should know that making the best use of electricity infrastructure and transmission brings down the cost of renewables and that is why I mentioned wind and pumped hydro. Pumped hydro cannot be just “anywhere” either as you should also know.
            You for some reason think that 10% increase in solar radiation is a “small” increase. You think that the difference in land price between desert and productive farm land is a “small” thing. You think that having other good renewable resources close by to share infrastructure is a “small” thing. You think that all this “means f%*k all” and that “there’s nothing much between the two sites”?

          • solarguy

            When I said ” PHS ” can be anywhere, that means where its suitable, doesn’t have to be close to plant. And it’s less than 10% difference. I never mentioned anything about desert and farm land and of course productive farm land shouldn’t be used, but the land around Liddell could hardly be described as productive at all!

            Plus I never said anything about having good renewable resources nearby. YOU MENTIONED THAT!
            But as far as the Liddell site and surrounding area goes, plenty of PV could go there.

            I haven’t argued that Liddell should be built over PA site, that’s in your head.

  • Ken

    Kiwi Barnaby mouthing off today that coal power will lead to reduced energy prices!

    Someone needs to call him out and point out that renewables have Zero fuel costs and much less labour costs to operate so how the heck can he come to the conclusion that coal generation can be cheaper?

    These pollies are either completely befuddled or thick or outright liars…

    Fryburger also complaining that a solar farm only employs five people.
    Doesn’t that just confirm to an improved efficiency in man hours compared to a dirty coaler ?

    • solarguy

      They say these silly things because of the money in brown paper bags they keep getting.

    • Joe

      They will tell the ‘lie’ so often that they know the non thinkings will believe it ( the lies ) to be the truth. As an example, Julia Gillard’s so called ‘Carbon Tax’ …just go and read her full statement.

  • Kevan Daly

    “We have no confidence in those numbers, we just wanted to use them as background.”

    An analyst’s credibility rises in proportion to his ability to evaluate his own numbers.

    • Ren Stimpy

      They’re not his numbers Kev, that’s (part of) the reason he has no confidence in them

  • solarguy

    Fantastic work David, I look forward to tomorrows instalment.

  • Les Johnston

    Interesting that the Mt Piper problem extends to its water pollution caused to Sydney’s water supply. This is not permitted under legislation. This has caused a major issue for Mt Piper.
    The second issue is that any extension of Liddell should see its operating pollution licence tightened to reflect 2017 requirements. This would reflect a truer cost for permitting the higher pollution plant from operating beyond 2022. It would also mean that a greater “gift” from the Federal Government should be provided should Liddell operate beyond 2022 as wished for by the Federal Government. It is time that economic costs were front and centre of operational decisions rather than the wishes of the Federal Government.