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New coal power plants are great – if you don’t have to pay for them

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Bayswater_Power_Station_with_coal

Source: Wikimedia Commons

Matt Howell, who is the CEO of Australia’s largest single electricity consumer – the Tomago Aluminium Smelter – thinks that Australia needs a new coal power plant.

On Monday night he told ABC Radio’s PM program that because NSW nearly ran out of power one day last summer – which required his plant to curtail its use of electricity to avoid paying extremely high electricity spot market prices – there was a need to build new fossil-fuel power plants.

According to ABC’s PM program, Howell had been meeting with many politicians in Canberra in recent weeks. He said it was pleasing a growing number of people were coming to the realisation that a new coal plant could be built to supply such reliable power with low emissions.

He told the program: “We have got an abundance of coal. We’ve got the technology. We’ve got the know-how and we would certainly like to see that continued with.”

When it was flagged by the reporter that the CO2 emissions of such plants were higher than gas or renewables he responded:

“We believe that the use of the latest generation coal-fired power technology is perfectly appropriate. It’s appropriate for some of the most advanced countries and economies in the world. It’s certainly appropriate for Australia.”

Listening to this, it struck me that if such plants produce electricity so cheaply, reliably and with low emissions then why wouldn’t his company build one themselves?

It is not as if this is beyond an aluminium company to do such a thing. Alcoa until recently was the long-time owner of the Anglesea Coal Power Station in Victoria.

The Boyne Aluminium Smelter in Queensland is part owner of the nearby Gladstone Coal Power Station.  In addition, several of Australia’s alumina refineries own significant power stations.

Also, if he doesn’t like the idea of owning one, there’s nothing to stop him from underwriting the construction of such a plant by someone else through offering a long term contract to buy all its power over a 20 year life. Such arrangements are a standard practice across the globe.

Also, given these new “advanced” coal power plants can apparently produce power with such low emissions that they are “perfectly appropriate”, then he surely doesn’t need to worry about any attempt by government to honour it’s Paris emission reduction commitments either?

But the thing is that he’s probably got a better idea.

Rather than Tomago Aluminium having to pay for a new coal fired power station, why not get you to pay for it instead?

Yes, while the aluminium industry seems to have little difficulty buying power stations in Australia and around the globe, he reckons the government (and by that he means Australian taxpayers), should do it instead.

And that really should come as no surprise, because if Tomago had to pay for a new coal fired power station they’d be out of business.

The cost of their power supply compared to current contracts would likely double based on realistic construction and financing costs that don’t just wish away the Government’s emission reduction commitments.

Howell tried to suggest that government should pay for the power station rather than his company, because the government was subsidising renewable energy which made it hard for the existing coal plants to compete.

This argument is complete rubbish.

If Tomago wrote out a contract promising to buy every unit of electricity from a new coal plant (or an existing one for that matter) at the price its owner needs for it to be viable, then why would the operator of the coal plant care about the subsidised cost of a wind or solar plant?

It is completely irrelevant to how much electricity they can sell and the price they sell it, which is set by the contract with Tomago.

You see, Tomago Aluminium is doing what the aluminium industry has been doing for decades the world over – fooling politicians to give them electricity (or power stations) below its underlying cost with the allure they’ll be creating (or saving) lots of jobs.

But as detailed in my 2010 research for the Grattan Institute, we could create vastly more jobs for greater community benefit by spending that government money elsewhere.

Tristan Edis is Director – Analysis & Advisory with Green Energy Markets. Green Energy Markets assists clients make informed investment, trading and policy decisions in the areas of clean energy and carbon abatement.

Follow on Twitter: @TristanEdis  

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  • john

    Perhaps this is why they will not build a coal fired generator copy and paste.

    Specifically, Bloomberg reports that the Levelized Cost of Energy (LCoE) of new ultra-supercritical coal-fired power in Australia sits at AUD$134-$203/MWh. This ranks well above the current LCoE for new build wind(AUD$61-$118/MWh), solar (AUD$78-$140/MWh), and combined-cycle gas (AUD$74-$90/MWh).

    Another report only a few months ago.
    http://greenmarkets.com.au/resources/overcoming-ideology-to-support-new-power-plant-investment-and-reduce-power

    • Rod

      Hi John,
      Do yo have a link to the current LCoE from Bloomberg?

      I was looking the other day and could only find 2106 projections for 2017.
      Also, the sceptics now seem keen to include storage in comparisons to FF

    • Mike Westerman

      LCOE for hydro in North Kalimantan, Papua (Indonesia) or Sarawak is well south of any of those numbers, and so are the logical place to build any new smelters, especially since they can be co-located or not too far from alumina refineries. Projects based on these hydros have been under development for many years but struggle against the massive oversupply of aluminium because of government subsidies in China. Until that is underwound, the only way aluminium can be viable is with subsidies by taxpayers or other consumers.

      • john

        That makes sense to me as Papua has high rain fall and high ranges so lots of places where they could use PHES.
        Considering the ore is mined in the Gulf in FNQ one could see how sending it North would be a good fit.
        Yes i am hearing you about the price plunge of the Aluminium price.
        However because of the high use of electric power to produce the product the most important cost to refiners is the price of electricity.
        Historically refiners were given a low price for power which frankly is unsustainable.

    • Ian

      LCoE is higher with our current gas price. It is closer to $150/MWh for OCGT running at 34% efficiency HHV.

  • Tim Forcey

    Yeah coal plants are great… if you, yourself, do not have to pay for the construction and operating costs of…, nor for the the climate and health consequences of the emissions from…, said plant.

  • Neville Bott

    “We believe that the use of the latest generation coal-fired power technology is perfectly appropriate. It’s appropriate for some of the most advanced countries and economies in the world. It’s certainly appropriate for Australia.”

    This is just the latest corporate speak for we don’t give a damn about how much C02 we emit?

    Just how “appropriate” does he think it is to continue to increase emissions when we are already at or past the point were any further C02 increase will lead to catastrophic climate change?

    Can the corporate elite that own and run this country be held to account for the damage they are doing before they have finished destroying the public institutions (ie CSIRO, BOM, independent justice system etc) that are their to protect us?

    • john

      Do not worry about the outcomes from building a new swanky coal plant look at the outcomes against using PHES, Wind and Solar in tandem the new swanky does not stack up.

    • Kevan Daly

      By “appropriate” I think he’s referring to China where the latest aluminium smelters are being built with captive coal-fired power plants on several coal basins in Sinkiang Province in the far west of the country.

    • Matt

      I think that it is good to see how much CO2 is produced in a modern smelter when electricity is generated using gas.
      http://www.ega.ae/en/technology/reduction-cell-technologies/d18plus-technology/
      This page suggests 421 kg C are consumed to produce each kg of aluminium, I wonder how “efficient” the Tomago smelter is?

  • Radbug

    There has not been a businessman, living or dead, who hasn’t tried to offload his costs onto the government.

    • MaxG

      I’d like to say “corporations”… in true neoliberal fashion, publicise cost and privatise profits… and the people do not see it… a fantastic scheme.

  • lin

    “You see, Tomago Aluminium is doing what the aluminium industry has been doing for decades the world over – fooling politicians to give them electricity (or power stations) below its underlying cost with the allure they’ll be creating (or saving) lots of jobs”
    Sounds like the snow-job the Alcoa plant at Portland did on the Victorian government in the 80’s. Other consumers subsidised their cheap electricity by 100 million a year for decades.

    • wideEyedPupil

      but jawbs

  • “We’ve got the technology. We’ve got the know-how and we would certainly like to see that continued with.” Absolute BS – we do not have the technology in Aus to design and supply a state of the art coal fired power station, it would have to come from overseas. What we do have is the technology to be very good dirt diggers.

    • nakedChimp

      ..and be gullible idiots.

  • Marcus L

    Privatise the profits, socialize the costs

    • Ren Stimpy

      When the government gives a large handout to a company one of the conditions should be that the company gives stock options to all its Australian employees. That way more of these companys’ profits will stay in Australia whose taxpayers helped them make those profits.