Closing Australia’s dirty power stations: That would be Direct Action

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Closing Australia’s most polluting power stations would dramatically reduce emissions and accelerate the transition to a lower emissions intensive economy.

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Closing Australia’s most polluting power stations would dramatically reduce emissions and accelerate the transition to a lower emissions intensive economy; Besides, the capacity is not even needed today. Australian Ethical’s International Share’s Portfolio Manager, Nathan Lim, explains.

It is clear to us that global energy policy continues to shift towards supporting a lower emissions intensive economy. This policy shift is most pronounced in the power generation sector where it can be stated categorically that the majority of advanced nations are seeking to reduce the carbon intensity of their energy sector. Admittedly, some nations are more advanced or ambitious than others, but the direction is the same. One way to accelerate emissions reduction is to close brown coal power stations because they are the largest and dirtiest.

Why we need to accelerate the transition to a lower emissions intensive economy

350.org prepared the chart below and utilised data from the Intergovernmental Panel on Climate Change’s Fifth Assessment Report. It shows how many years we have remaining to limit future temperature rises if we maintain our current emissions path. A 2⁰C rise is considered the maximum allowable warning to avoid dangerous climate change. In this context, there is an urgent need to cut emissions intensity today.

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As was most recently demonstrated in South Australia, switching from coal-fired generation to a combination of natural gas and renewable energy is possible today with no impact on reliability (see our previous article here).

Switching to natural gas affords a temporary reprieve from the carbon countdown as this form of power generation still emits carbon but at a substantially lower level than brown coal. This time could then be used to deploy more renewable energy and gives energy storage technology time to become more affordable.

But the pricing signal is confused

Power prices in many developed markets have been persistently weak. One of the contributing factors has been the growth in renewable energy which has had the perverse impact of artificially lowering wholesale electricity prices.

This is the result of its incompatibility with how conventional wholesale electricity markets work (see our previous article on this here) and its contribution to excess generation capacity. It should be emphasised that the dominance of cheap coal-fired generation is also a large factor in the low electricity price because it does not properly account for the carbon pollution it emits into our air. Said differently, coal-fired generation is cheap and by extension so is wholesale electricity because the true cost of carbon pollution has not been properly accounted for.

Low electricity prices create a negative feedback loop. As long as coal is the cheapest form of power generation, there is no financial incentive to use lower emissions technologies.

Coal-fired closures are a direct solution 

The most elegant way to fix the false price signal given by coal-fired generation is to institute a carbon price via a tax or trading system. However, we recognise that this is politically too toxic to contemplate right now. If one of the purposes of a carbon price is to make coal-fired generation less attractive economically then the next best thing is to encourage closure of the power station directly. This is precisely what Canada and the US have done/are doing. In Canada, all existing coal power stations have a 50-year mandated life meaning the country will see a natural decline in the number of coal-fired power stations in the future.

The regulation also specifies that new coal-fired power stations will need some form of carbon capture to meet emission limits. Likewise in the US, it has been proposed that all new and existing non-natural gas-fired power stations must emit less than 1,100 lbs of CO2 per megawatt hour. For coal-fired facilities, this again will only be possible with some form of carbon capture. These onerous restrictions are projected to lead to substantial coal power station closures throughout North America regardless of the technological availability of carbon capture.

In Australia, closing coal-fired power stations will also have the benefit of reducing the massive overcapacity we currently have in this market. The Australian Energy Market Operator (AEMO) has estimated that there is up to nine gigawatts of excess capacity in a market with approximately 50 gigawatts of total capacity. 90% of this oversupply is concentrated in New South Wales, Victoria and Queensland.

All this excess capacity weights against prices as there is simply too much supply of electricity. To this end, Victoria’s 6.6 gigawatt fleet of brown coal generators look like prime candidates for closure.

Take advantage of the current situation

Given the enormous oversupply in the market, Australia could use this opportunity to forcibly close excess generation by imposing an emissions threshold on existing generation. In the first instance, we would not need to target all coal generation just the most polluting ones. Victoria’s fleet of brown coal generators are collectively the highest source of carbon emission per unit of electricity produced in the country.

We estimate they produce approximately 68 million tonnes of CO2 per year which is approximately 12% of Australia’s total emissions. Given the enormous oversupply of electricity in the market, why not take brown coal out of our system today?

Our carbon budget is rapidly depleting and it will take decisive action by all countries in the very near term to get ahead of the climate challenge. Brown coal is one of the most polluting forms of power generation and it is technologically obsolete. Its use persists only because we have been unable to effectively price the pollution it creates.

In Australia, we have nearly a decade of excess capacity as estimated by the AEMO such that we could rapidly take out generation capacity and not impact reliability. By targeting brown coal we could radically slash our national emissions, rebalance the electricity market for the betterment of all participants, maintain high system reliability and end up with dramatically cleaner air.

We should not miss this opportunity to make a meaningful contribution towards the fight against climate change especially when we are cutting something we hardly need.

Nathan Lim is a portfolio manager with Australian Ethical Investment.

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17 Comments
  1. suthnsun 4 years ago

    Economy wide emissions intensity cap of 800g/kWh next year and decreasing by 100g every 2 years. Let every generator know what the requirement is and let them decide individually how to adapt. No favourites, no compensation.

    • Nathan Lim 4 years ago

      Technology agnostic approaches make plenty of sense. Just like nobody told Toyoto to invent the hybrid engine, set a well defined policy goal and let the market figure it out!

    • Catprog 4 years ago

      Or set a total allowed over the entire economy and let everyone work out the best way.

      • suthnsun 4 years ago

        I think we need both, Gorgon gas would be precluded by a cap, brown coal could slip under a cap, with both the constraint is more complete. Then we need to ratchet up transport standards to cover liquids.

  2. juxx0r 4 years ago

    Why don’t we target:
    Mercury
    NOx
    SOx
    Cadmium
    Arsenic
    Emissions too and put the public’s health as a top priority?

    • nakedChimp 4 years ago

      those who own make the rules, not the ones that do not own 😉

  3. Excellent plan, Nathan, possibly too logical to be taken up by government. The benefit to the health of people who live near the power stations would be an extra bonus.

    • Nathan Lim 4 years ago

      Very true. I’m sure the 4 million people in Melbourne would agree!

      • Barri Mundee 4 years ago

        The 100,000 people who live in the Latrobe Valley, where I live, will have mixed feelings about closure. The region seems unable to envisage a future not dominated by brown coal. Employment in the industry has declined for years but it still important.

        The region will need assistance to replace the jobs lost. A staged closure over some years could be feasible but below a certain level the private owners cannot survive and would likely shut down. The Morwell Briquette complex has recently closed as has an industrial char plant. Hazelwood, the oldest of the brown coal stations and the most co2 intensive, is the logical choice to close but it might require a change of federal government to make it happen.

        • Nathan Lim 4 years ago

          Clearly change will be painful and one can not make light of that fact. Agree that a staged shutdown would be the most sensible but only after a very clearly outlined long term objective has been laid out. For example, a legally binding and meaningful emission reduction target by 2030 ie a 5% cut is just not good enough.

        • Mike Dill 4 years ago

          According to what I have found, the price of coal for Hazelwood is about $25 per MWH, or $0.025 per KWH. When solar gets to that price, coal will be gone. With some luck, we might get some rules in place to close it before then.

          • Ronald Brakels 4 years ago

            Victoria’s brown coal generators recieved an average of under 2 cents a kilowatt-hour when we had a carbon price and they didn’t shut down. Mind you, these are brown coal power stations and their lignite fuel is not exported and so they pay almost nothing for it beyond what it costs to scoop out of the ground, regardless of the actual costs of local pollution to people in the are and the costs of global warming to everyone in the world.

  4. Ray Miller 4 years ago

    Thanks Nathan for the article, judging from what I know about how inefficient our collective use of energy is, as Alan Pears has constantly pointed out. A focus on improving the energy efficiency at a positive return and closing down the worst polluting plants is a no brainier. Pity about the companies making poor investments in the inefficient plants, I will not loose any sleep over them closing without any compensation. I hope then they cannot not afford their annual political donation to the Libs.

    • Nathan Lim 4 years ago

      You are exactly right in that energy efficiency is an area that sadly gets ignored to often. The most efficient watt is the one you don’t use! Tackling the problem from both ends, reducing consumption and producing energy cleaner, can only bring forward the right outcomes faster.

  5. Paul Turnbull 4 years ago

    The carbon countdown chart is devastating – especially if you consider James Hanson’s report and risk of greater than expected sea level rise on board. I like the idea of taking out brown coal and the mechanism you describe is a good start. …Have you considered how we might reduce existing and future coal exports? Need to ensure that our coal does not destroy the planet because some one else burns it?

    • Nathan Lim 4 years ago

      The market is taking care of that as governments increasing discourage or close coal fired generation for cleaner alternatives. Ongoing low coal prices shows the stuff increasingly can’t find a buyer.

  6. Andrew Woodroffe 4 years ago

    Right now in WA, we have a excess of generation capacity of over 1000MW, ‘certified’. By certified, I mean the rating they are presumed to put out during peak loads, ie very hot conditions during the working week. If we sum the certified capacity of Muja A, B (built in the 60s) and Muja C, D (in the eighties), we also get just over 1000MW.

    In other words, we could turn these old coal power stations off today, and the lights would stay on. Not only that, during peaks in demand over the next summer, the lights will still stay on.

    Gas generation would go up to fill the missing kWhs, rooftop solar would still be installed at 80MW/year BUT Synergy would then have some incentive to negotiate PPAs with windfarms instead of just buying LGCs from over east.

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