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Why Coalition’s “clean” coal plans are just a smoke dream

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The Coalition government appears determined to try to force the Clean Energy Finance Corporation to invest in new so-called “clean coal” plants, with both the energy minister Josh Frydenberg and finance minister Mathias Cormann saying they were prepared to re-write the CEFC investment mandate.

“That is certainly one of the options that we are looking at because we have recognised that we have an obligation after what we have seen in South Australia to ensure that this does not happen across the country,” Frydenberg said on Sunday in now widely reported comments.

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But simply re-writing the investment mandate may not be enough, given that it is clear that coal is a much costlier and dirtier alternative to new wind and solar farms. The government would likely have to commit billions of dollars in indemnities and guarantees to get any such coal investment over the line.

This was the point made by outgoing CEFC chief executive Oliver Yates in his appearance before the Senate committee into Australia’s energy security in Canberra just over a week ago.

Like fossil generators, the main energy generators lobby, and all the banks, Yates pointed out that clean coal was “uninvestible” in Australia. But he went further.

Mr Yates : Currently the way it stands is that, if there were an economic project which could be economic and generate emissions 50 per cent less than the grid without using carbon capture and storage, technically it might be able to fit within the definitions. But, again, we would not be able to invest in a project like that on commercial terms without indemnities from the federal government for future carbon price. We would not be able to invest in it unless we had full indemnities from the federal government, unless they were willing to take the risk that construction could be delayed as a result of activist intervention. And we would not be able to invest in it unless they provided a very long term power price curve and a contract, because we are seeing renewable prices continuing to decline, and there is no point investing in an asset which is going to produce electricity at a higher price. So commercially it is seriously challenged.

Senator URQUHART: Yes, but you do not need legislative or administrative changes to allow that to occur, to invest in USC?

Mr Yates : Technically, it is very clear underneath. It is clear from the way the CEFC Act was designed that it was not contemplated—just like we would not be financing gas, we would not necessarily be financing relatively high-emitting coal-fired power stations. If there was a technology—if coal-fired power stations could be made to be very low in their carbon emissions then, rationally, we would all be saying, ‘This is fantastic.’ But until such time as they are able to demonstrate much lower emissions, it is not really a technology that would be likely to have a long-term path. Therefore, it would again be very risky for the taxpayer to invest in.

The Coalition is keen to have a new “clean” coal fired power station built in north Queensland, with the enthusiastic support of the minister for resources and northern Australia, Matt Cannavan, and local member for Dawson George Christensen, and the Mining Council of Australia, which wants more markets for its coal and which is launching a new pro-coal advertising campaign.

But there is a limit to what it can do. It cannot direct the CEFC to invest in carbon capture and storage because it would require a change to the Act. Labor has branded the idea an “outrageous act of vandalism” and the Greens described  as “dumb, dangerous and purely ideological” and compared it to subsidising asbestos through the health budget. So that wouldn’t get far.

The Coalition would like to change the CEFC’s restriction on any investment to achieve more than 50 per cent emissions reduction. That limit was imposed by the board to make it clean exactly what a “clean energy” investment would be, to ensure that it is more than sticking a few solar panels on a fossil fuel plant.

Any challenge to that is likely to be subject to intense legal debate. The Coalition could, of course, wait until August when it will have the opportunity to replace most of the green bank’s board members, when the current board’s five-year term expires.

The act also makes it clear that the government is unable to direct the CEFC to make a particular investment, such as a clean coal project in an area such as north Queensland.

The CEFC is also obliged to take into account its other investments, and weigh whether an investment in new coal plants would imperil its remaining portfolio of wind and solar projects, as well as energy efficiency and storage.

In the meantime, the CEFC is looking for a new CEO to replace Yates. But while any replacement is the choice of the board, the appointment has to be made with the approval of Frydenberg and Cormann.

The finance minister on Monday was insisting that there was little risk in investing in new coal, while Frydenberg’s office was pointing to a CRC report to insist that coal was a cheaper investment than renewables.

But the CRC report is already old hat. It is based on 2015 figures and solar costs in Australia have already fallen by nearly half, to below the point that the CRC thinks it will reach in 2030.

On the other hand, the Paris climate agreement has been forged, which means that on current trajectories, Australia will exhaust its emissions allowance within 16-18 years.

No investor will put up any money unless the government gives it a cast-iron guarantee to protect against any carbon price, and to guarantee all payments.

This latter point is crucial, given the amount of large-scale solar that has already been committed in northern Queensland, which will help hollow out the daytime price of wholesale electricity.

It is now dawning increasingly on investors, if not conservative politicians, that renewable energy can provide, clean, local, and cheap electricity, that doesn’t need to carry the huge transport costs, particularly when pared with storage.

Burnt coal, on the other hand, releases dangerous gases that must be held for ever at huge expense for zero return. And it is usually burned in the wrong location.
Bloomberg New Energy Finance recently estimated that new coal plants would cost nearly twice as much as new wind or solar plants, and it and the Melbourne Energy Institute have questioned whether it would actually reduce emissions by all that much.

Indeed, emissions from new ultra-supercritical coal plants are likely to exceed the current national average, and will lock in those emissions for 30-40 years. The MEI also noted that replacing the coal fleet that will retire in the next 10-15 years with a new coal would cost more than $60 billion.

  

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  • Tim Forcey

    In North America, where carbon dioxide is captured, it is used for “enhanced oil recovery” to scrub more oil from previously thought-to-be-depleted oil reservoirs.

    So the goal of “carbon capture” in North America, is to produce more oil. The goal is not climate change mitigation. Will this technology be “transferred” to Australia?

    See: http://media.bze.org.au/fossileconomy/Carbon%20Capture%20and%20Storage%20information%20paper.pdf

    • Social responsibility is dead.

      ‘Enhanced oil recovery’ is not clean coal.
      Carbon capture, by any method, is not commercially viable. So no.

  • john

    So we have a situation where to replace the old coal plants with new ones $60 billion.
    We could build heaps of distributed solar and wind to reduce the need for back up power during most of the day.
    Better still CST should be built once again distributed over the country adjacent to the transmission system.
    Build as many hydro solar and wind for that matter to also contribute to the energy supply.

    Now at the end of this exercise look at what is the simplest type of fast type generator to install to fill the gaps.

    Perhaps some gas plants will be of use.
    My personal preference is large scale CST and solar hydro and as many wind farms and solar farms as possible.
    With sufficient solar the 6 hours of daytime demand should be covered the only aspects left to tackle is the ducks head and tail morning and evening.
    Those CST plants should be able to look after the Tail and with sufficient solar hydro the head also reduced.

  • Rob G

    Another reason clean coal won’t happen (and the 1 billion dollar Adani rail line)
    http://www.smh.com.au/business/the-climate-bombshell-the-politicians-didnt-touch-20170219-gugn0r.html

  • Jason Watson

    What isn’t mentioned is the sale of the “clean coal” power into the market. Unless the government is going to legislate for the offtake, I can’t see how it can be economic. It will be bidding in higher cost power into a saturated market, competing not only with renewables, but all the existing “dirty coal” stations.
    This is the main reason the banks and power companies won’t touch new coal. If it goes ahead, it will be a white elephant on day 1.

  • Steve159

    “God parity”
    Won’t matter what price “clean coal” gets down to, network costs will encourage more off-grid, or more micro-grids.

    I think we should all be grateful, really grateful that the LNP are on this path to self-destruct. Can only help progressive parties make a killing at the next election.

    • Peter Campbell

      Yeah, it looks really stupid. Who could possibly be fooled and vote for such obvious nonsense? But, Trump happened!

  • Radbug

    Scary. The only way to describe Toshiba’s experience with Westinghouse. Toshiba’s new, taken-over, asset, Westinghouse, has bankrupted it. Face facts: renewables are the low risk option nowadays. “Clean Coal” has become the high risk option, and Toshiba’s fate is an in-your-face reminder of the disasters that can await if you invest in the high risk option.

  • Steve

    Today’s AFR has more lies about comparative costs of energy, this example being CCS. Perhaps they need to do some fact checking. Lazard has coal with 90% CCS at 14.3c/kWh, which is actually more expensive than rooftop solar’s low end of 13.8c/kWh.

    “He cited findings from Lazard that put the levelised cost of energy from a natural gas plant with CCS at US6¢-US7¢ a kilowatt hour, or at US8¢-US12¢ for a new coal-fired plant fitted with CCS.
    That easily beat rooftop solar at US18¢-30¢/kWh, offshore wind at US15¢ and nuclear at US10¢-18¢, although it fell short of utility-scale solar at US5¢. Using fossil fuel plants with CCS provided needed reliability and stability of power supply to the grid, supporters argued.”

    Read more: http://www.afr.com/business/energy/gas/carbon-capture-far-undercuts-rooftop-solar-expert-20170219-gugjs1#ixzz4ZH0NHJ3R

    Lazard LCOE
    https://www.lazard.com/media/438038/levelized-cost-of-energy-v100.pdf