rss
47

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

Print Friendly
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  

Share this:

  • 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.

    • Rohan Bussell

      “What we do have is the technology to be very good dirt diggers.”
      Most of the tech we use for mining comes from overseas too. As a nation we’re extremely good at producing whining greenies though.

  • 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.

      • Rohan Bussell

        Can you provide examples of the last time a large fossil fuel company in Australia got a cash handout? Lately the only things Ive read about is concessional loans and land rate loans. Loans are cash handouts…

        • Ren Stimpy

          Do you mean aside from governments having had to build every large fossil fuel generator in the country? That doesn’t bode well for the next one, which would certainly require large government handouts at the least – and the admission from the pro-coal conservatives is that the government should build one because the free market is not going anywhere near it.

          • Rohan Bussell

            If you look at Australia, there are no coal fired stations even being suggested. The Turnbull Government briefly advocated that HELE coal would be good for the country, but why would anyone build it with the federal RET in place?
            There are other reasons, but none are needed. It has nothing to do with LCOE comparisons or the high capital cost or spot prices…it has everything to do with the RET making coal plants load follow intermittents at low capacity factors and then having to cross subsidize intermittents by buying certs or paying fines.
            Greenies totally delude themselves that Australia is a level playing field for generators and generating technologies, the whole point of the RET is give an advantage to renewables.
            So much for government handouts, its a claim that is made, but not backed up by facts.

          • Ren Stimpy

            It’s a very simplistic and incorrect view to blame the decline of coal fired power on the RET.

            The bottom line is that investment in new coal fired power stations requires a 50 year view – 10 years for the project to be approved, financed, designed and built, followed by 40 years of operation to pay off the investment and make a profit. Any sane investor knows that there will be ever-tighter constraints on carbon emissions over the next 50 years (though they are uncertain what these will be). Any sane investors knows that ever-cheaper solar will put an ever-larger dent in daytime power demand, and probably within 10-20 years will provide midday surplus power on most days which can be load-shifted to the evening peak via ever-cheaper energy storage – so not even halfway into a 50 year coal station investment.

            Those are the reasons the private sector won’t build new coal fired power stations here, oh and there’s also the RET but the case for new coal fired power is already negated before the RET is even considered. If you want to blame greenies for the RET, you probably should blame that mad greenie Tony Abbott who legislated a 33,000 GWh RET, and who also set a target of 26-28% reduction in carbon emissions on 2005 levels, but lumped all of the burden for those reductions onto the electricity sector with a dead-zone of emission-reduction policy in the various other emission-intensive sectors.

          • Rohan Bussell

            “If you want to blame greenies for the RET…”
            The Howard Government implemented the original RET, which is totally mindboggling when you think about it. This says a lot about how green minded Australians generally are, on average, that pressure influences pollies. But Howard put it through at a time when global warming alarmism hadnt even become ‘a thing’, it really amounts to a massive betrayal of the conservative-right of politics that the liberals supposedly represent.

          • So, is that because conservatives don’t believe in climate science, basic economics, and have forgotten the massive historical and ongoing subsidies to the fossil fuel industry?

          • Rohan Bussell

            “climate science”
            And what do you claim climate science is actually saying?
            “basic economics”
            Renewables are increasing because they are being cross-subsidized to do so…I agree thats basic economics.
            “massive historical and ongoing subsidies to the fossil fuel industry”
            Very debatable depending on what facts and figures you want to base the argument on and what purpose you want that subsidy to have. If you want to promulgate a conspiracy theory at me about fossil fuel, my response to you will be negative.

          • Mike Westerman

            Open your eyes Rohan – renewables are exploding for the same reason as solid state electronics exploded: they’re cheap, cheaper than any alternative. Read any report from any utility owner and they make that clear. You may wish otherwise but that’s the simple facts. So unless you want to force Australian consumers and taxpayers to pay more, you can expect the market will simply adopt more renewables. Unsubsidised prices of under USD30 for solar are already here.

          • Mike Westerman

            I think Australians fortunately are generally appreciative of clean air, clean water and not entirely wrecking the joint, as is happening elsewhere in the world. Global warming alarmism likewise fortunately is still not a thing – acceptance of science still is widespread: people fly in aeroplanes and drink the water. As an engineer I find that fairly comforting – it helps me block out the noise from the far right that would rather pretend consumption can go on at ever increasing levels for ever.

          • Rohan Bussell

            Dont compare global warming alarmism with the science that goes into the building of aeroplanes…you insult your own profession when you make that implicit claim.

  • Rohan Bussell

    “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?”
    Its a silly, logical fallacy.
    The exact same logic applies to anything and everything that has been subsidized, cross-subsidized, or economic-specialized, or where externalities are unpriced.
    The only thing we can say for sure is this: if we can guarantee affordable and continuous gas supply, a CCGT is better than any coal plant. However, even CCGT becomes harder and harder to justify in an energy market where everything is forced to load follow intermittents.
    The RET has caused one of the most mammoth industrial transformations in our history, it has been fuelled by government mandated cross-subsidization and enforcement…and pro-renewables greenies still harp on about how privileged fossil fuels is. Protip: baseload fossil fuels is closing down at a rapid rate (on capital investment timeframes) and the only fossil fuels that can survive are those very expensive and very polluting short term technologies that load follow renewables.
    Working as intended. Dw, there will be no coal plants built while the RET exists.

    • Ren Stimpy

      Sorry but even without the RET there won’t be any new coal plants built – unless there is a huge government intervention. So the RET is essential to spur investment as our current coal fleet slowly closes down. We need more variety and wider distribution of renewables, and accompanying storage, to lessen their intermittency. We also need more variety of clean dispatchables (e.g. CST, pumped hydro, biomass) to lessen our reliance on expensive gas fired generation. Basically we need another RET after this current one ends.

      People really do exaggerate and whine about the RET. In reality it’s only a very small amount of a power bill

      https://uploads.disquscdn.com/images/9b0bdd45b8679d4714f8b50d64936f68f7d1b8d8fcbbf5e73838841477e41d0a.png

      • Ren Stimpy

        The RET also provides good value to consumers, as the more renewables that are generating at any given time, the lower the cost of wholesale power, because then less gas fired power is required.

        https://uploads.disquscdn.com/images/d3f054dee2ab1f783945a78db39cac9ee455d158ccc7650977acc47e64de225e.png

        • Rohan Bussell

          “Sorry but even without the RET there won’t be any new coal plants built”
          The RET system is what generates clean energy certificates, they vary between $50 to $80 of extra income per MWh…the rooftop solar was even more grotesquely subsidized.
          Take away the RET and the clean energy certificate trading system and it changes the financials significantly.
          I have never seen a chart that says “SA pool price”, what is it?
          “Basically we need another RET after this current one ends.”
          Good god…haha, yes, of course pro-renewable advocates would want that, its not a good idea though.
          “… the lower the cost of wholesale power, because then less gas fired power is required.”
          That is a very simplistic view. Because in the absence of sufficient storage, SA based peaker type plants and diesel generators are both needed more because of wind, but are very expensive, that is why the price volatility is notoriously bad and the average wholesale spot price is around $110/MWh. Averaging makes it seem ok from an LCOE/capacity factor point of view, but in the market it is different.
          And I also think that you delude yourself to an extent, that that bar graphic of the breakdown of a “representative” bill shows the RET hasnt been a key reason for the destabilization. News coming out in the last few months indicates that the average SA bill is now between $2,000+ range.
          What damages SA is its abandonment of any responsibility for orderly transition. If the governments are going to screw with the market system to achieve their global warming mitigation agenda, then they have to take a longer term view. The private sector hasnt, it has waited for government, the wind and solar companies didnt build their own pumped hydro or whatever, they just built their projects, collected their CECs and then sold into the grid with no care for what it would do over time.
          3 coal plants closed that supply SA (2+1) and AGL later claimed that they didnt know otherwise they would have done more to prepare the Torrens plant. There is an obvious lack abdication from planning responsibility by all involved. Different players have their reasons for not caring, the end users of electricity suffer.

          • Mike Westerman

            Rohan – whether good or bad, we have a market. I for one don’t think markets are a terribly good way of planning for long term investments but that is another subject. To heap the failings of the market on the RET is misguided to the point of nonsense. For years before wind and solar became cheap enough to compete without subsidies, high priced gas set the price during peak periods and grossly overcompensated inflexible generators like coal. The lignite plants made a killing. Sure, the RET enticed wind and solar into the market much sooner than they would otherwise have done, but just as semiconductor prices have invariable destroyed the market for vacuum valves, ICs for transistors, so to was it inevitable that solar and wind would eventually uncut coal on LRMC and then on SRMC. There is no justification in a market that for years so handsomely rewarded dirty and inflexible generation to suddenly decide to protect them from cheaper forms of power, and neither is there any market imperative for penalising them for not supplying the market when they are not able to: that has never been part of the design. The market has instead used incentives to encourage flexible generation like gas to make up for the shortfall inflexible generation failed to supply.

            If there is a criticism of the RET is that it wasn’t accompanied by reverse auctions to manage the inevitable transition that ultra cheap intermittent RE would require. Security of supply is something imposed on all offtakers, whether they need it or not. I have a UPS on my internet and batteries in my phone, and I can install UPS on my LED lighting, but I still have to pay for an ultra reliable grid supply. Given that, the means of maintaining security of supply at some mandated level should be a cost spread over the entire network operation. This has not been done, nor planned for, and the result is an increasingly fragile grid.

          • Rohan Bussell

            “For years before wind and solar became cheap enough to compete without subsidies, high priced gas set the price during peak periods and grossly overcompensated inflexible generators like coal.
            The average price in SA has basically gone like this:
            2013 = $70/MWh
            2014 = $62/MWh
            2015 = $39/MWh
            2016 = $62/MWh
            2017 = $109/MWh
            2018 = $105/MWh (so far)
            So where is the gas price in past years setting the price? Even now its only lucky, in my opinion, that Torrens and Pelican Point are still open. How does gas set the price when gas is operating at borderline closure capacity factors?
            Gas probably used to set the price before intermittents increasingly became the dominant player. All of this locks in higher prices, part of the problem being the wildly changing demand at certain times of the day. Intermittents not only didnt provide storage, not only are they generally more expensive anyway, particularly back when the RET first got implemented, but they exacerbate the natural fluctuations with their own fluctuation generation.

            Build solar, then a pumped storage, its hard to say what that does to power bills, particularly for the big and energy intensive businesses.

            I am also unfettered by global warming alarmism, so the assumption that ‘we need clean energy’ doesnt sway me away from fossil fuels or any other venture, eg Adani.

            What I do recognize is that the renewable target as it currently stands is a wasteful and expensive policy. Whatever governments do, they have to correct it, promising to to go from 14% to 50%, with the technical and policy issues left unresolved, including those you have mentioned, is ridiculous and stupid.

          • Stop cherry picking. Go on, plot those prices with Queensland, with no large scale solar and wind. And then read report by networks lobby saying that between 30 and 50% renewable penetration is “trivial”. That’s the network owners, I stress, the people whose job it is to keep the lights on. Yes, it not great for coal or gas, but so what.

          • Rohan Bussell

            “Stop cherry picking.”
            How about you fuck off to the AEMO site and check it yourself…all the NEM states are there. Your a mod, but youre not gonna get away with bullshitting me.

          • I did. And it bears out what i said. People can find the link here http://www.aemo.com.au/Electricity/National-Electricity-Market-NEM/Data-dashboard#average-price-table. Meantime, you can F-off right back to where you came from. Bye.

          • Mike Westerman

            Rohan I suggest you conceal your ignorance by doing some reading on how the electricity market works in Australia. The price paid to all dispatched power is the average for 30min period of all the maximum 5min bids dispatched. Since gas is always more expensive than coal, if gas is dispatched it will set the price received by coal generators. If there is enough wind, it will bid zero or negative to ensure it is dispatched, and gas will generally drop out of the market, leaving coal to set the price. Now that there is so much solar and wind that AEMO is insisting on gas operating, once again gas is setting the price. Gas generally can ramp up and down readily so has no incentive to bid at under its marginal cost, and in fact will almost always bid well in excess of that. Coal on the other hand will often bid below SRMC because it knows there will be “make up” periods when there is enough demand that gas will set the price and coal will make a killing.

            Yes you sound quite unfettered by evidence, and you are fortunate you don’t live in part of the world where burning coal is killing people. Go to http://aqicn.org/map to see what a third of the world’s population are living with and why they are moving away from burning stuff to power their economies. We have a choice to make stuff without burning stuff, and we should be getting on with developing those resources, rather than listening to those like yourself who hypocritically enjoy the fruits of science but feign disbelief in it when it suits their political purposes.

          • Ren Stimpy

            You talk about orderly and long-term transition. Gas was supposed to be the transition fuel, and I think most people accepted that, as it has half the emissions of coal and can follow demand/load far more closely.

            The problems with that plan began when our gas producers started exporting LNG like the clappers, which stripped the domestic gas market of plentiful supply and now our gas prices have gone through the roof.

            So it’s time for Plan B – non-fueled, or guaranteed cheap fueled, dispatchable power plants and storage. Grid batteries, CST, pumped hydro, biomass.

            SA has been diligent in recognising that a new transition in the distachable side of things is required, and they have acted on it with new grid batteries and a CST power plant, and probably soon some pumped hydro.

            In terms of a national long-term plan there is the Finkel recommendations, but the government is busily beating itself up about the CET – the centrepiece of Finkel – they’re scared to death that someone might call it a carbon tax. Look to the federal level if you want to pin blame for uncertainty, lack of planning, lack of policy and therefore high energy prices.

            SA is doing a rather good job of the transition given all the obstacles.

          • Mike Westerman

            Well put! For pumped hydro in SA, see the announcement on the Hillgrove website (ASX announcements) about building a PHES at their Kanmantoo copper mine at the end of mining in 2019. Others will follow (apart from the seawater ones which will probably stall).

          • Rohan Bussell

            Itd be good to see the LCOE for these proposed pumped hydros. The only solid reference I have seen so far is in the 2017 SA FT report of $160/MWh.
            Perhaps a dedicated, integrated pumped hydro would be cheaper.

          • Mike Westerman

            Why are you looking for something else from engineers not to believe?

            The projects I’m looking at range from $50-90/MWh assuming 30y life and WACC of 7.5%.

          • Rohan Bussell

            A$50/MWh for pumped hydro…lol…doesnt sound right tbh.

            Why would anyone build anything else anywhere in the world if pumped hydro was that cheap.

          • Mike Westerman

            Oh so you’re a hydro expert now as well as a climate scientist? I can understand why you talk such nonsense on climate change!

            To make an investment in something with an economic life >30y needs more certainty than is provided in the policy free space that is Australian network planning and regulation. Pumped hydro needs an primary energy source, so until there is sufficient surplus solar and wind, PHES and other storage will have limited arbitrage revenue streams. Network operators are starting to realise tho’ that the loss of inertia on the network from both loads and generators is hard to manage, and can lead to network separation during major faults or frequency collapse.