Farewell to brown coal without tears: how to shut high-emitting power stations

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Even with increasing amounts of renewables, and more power capacity than we need in the network, brown coal power stations are still running.

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Loy Yang power station in Victoria’s Latrobe Valley. Takver/Flickr, CC BY-SA
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The Conversation

Loy Yang power station in Victoria’s Latrobe Valley. Takver/Flickr, CC BY-SA
Loy Yang power station in Victoria’s Latrobe Valley. Takver/Flickr, CC BY-SA

Australia’s large brown-coal-fired power stations are among the highest carbon-emitting power plants in the world.

Yet even with increasing amounts of renewable sources added to the electricity network, and more power capacity than we need in the network, these stations are still running.

We have a suggestion for how the problem could be solved, in a way that is cost-effective and should be politically acceptable.

Which coal should bow out?

Australia’s renewable energy target brings new power-generating capacity online, but overall electricity demand fell over recent years.

As a result, fossil fuel power stations are running for less of the time. Ultimately not all will be able to survive. But which ones will go?

Within the fossil fuel power fleet, the plants with the highest emissions are the brown-coal-fired power plants in Victoria’s Latrobe Valley. (The South Australian brown coal plants are due to be closed in 2016). So these plants should go first, in the interest of reducing Australia’s carbon emissions.

With a high enough carbon price, the cost of running high-emissions brown coal plants would be higher than the cost of lower-emissions black coal plants. Indeed brown coal plants were running less during the two years that the carbon pricing mechanism was in place, which contributed to emissions reductions during those years.

But without a carbon price in place, the running costs of brown-coal-fired plants are extremely low: they sit right next to open-cut coal mines and there is no alternative use for the brown coal, so the fuel cost is minimal.

And so there is the risk that the next large power station to shut down is one that produces electricity with much fewer carbon emissions than the brown coal plants, and that the high-emitting brown coal plants stay put.

To see the magnitude of the issue, consider that the average emissions intensity for Australia’s black-coal-fired plants is around 0.9 kg of CO₂ per kilowatt-hour, while Victoria’s brown coal plants run at 1.2-1.5 kg of CO₂ per kilowatt-hour.

We estimate that the closure of one of the more emissions intensive of Victoria’s brown coal fired power plants could save between 2 million and 7 million tonnes of CO₂ per year. This accounts for extra electricity produced by black coal power plants, and that the remaining brown coal plants might be run a little harder too.

Closing plants a tough sell

Australia has a target to reduce national emissions and the government has stated that it is not planning to reintroduce a comprehensive carbon price. This would suggest that specific government intervention to close brown coal power stations is warranted. However, the policy mechanisms usually suggested have substantial drawbacks.

One way to go about closing power stations is for government to pay subsidies for plants to close. Germany is preparing a variant of this to retire three brown coal fired plants. Under the Gillard government in Australia, there was a plan to make payments for closure, however it was abandoned.

But it would not be politically acceptable for the government to pay large amounts of taxpayers’ dollars to the owners of an old high polluting plant. It would also be difficult for government to choose the right plant, and to calibrate the payment, because much of the information needed is available only to the operators of the power plants.

Another approach is to simply use government regulatory powers to force shutdowns of particular plants, say on the basis of age or emissions intensity. But it would not be desirable for government to intervene by singling out one or more particular plants and forcing them to exit the market – and it would similarly be politically unacceptable in any case.

Let the market decide

In our new paper Brown coal exit: a market mechanism for regulated closure of highly emissions intensive power stations, soon to be published in the journal Economic Analysis and Policy, we sketch a solution to the dilemma.

Under our approach, the government leaves it to a competitive bidding process to determine which plant will close and at what payment level. Plants bid over the payment they require for closure, the regulator chooses the most cost-effective bid. The plants remaining in operation then make financial transfers to the plant that exits, in line with their emissions, under government regulation.


Such a mechanism can provide emissions savings from plant closure at least cost, avoid budgetary costs by sourcing the payments for closure from the plants remaining in production, and provide some incentives to adjust the power mix to reduce emissions. Payment by remaining generators on the basis of emissions also encourages plant owners to submit lower bids than otherwise, given that they would be faced with emissions-related payments should they remain open.

Additional costs would ultimately be borne by consumers as electricity prices rise to accommodate more expensive power sources. However the impost would be small and temporary because the payments would likely be small compared to the overall size of the market.

More detailed analysis will be needed, including about strategic bidding in a market with a small number of candidate plants, and detailed modelling of likely effects on emissions, prices and revenue. But with this proposal we hope to rekindle a discussion in Australia about closing brown coal stations, which might not happen as soon as it should without a carbon price.

Source: The Conversation. Reproduced with permission.

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6 Comments
  1. Ray Miller 4 years ago

    The high emitting plants like Hazelwood are a disgrace and should be closed down, today would be acceptable. The owners of the brown coal plants have know forever that they are on borrowed time. I would propose we take 100MW of capacity out of the market every 3 months starting with the highest carbon intensity, and no compensation, zip, if they do not close they should be paying at least $100 per tonne of carbon emissions. We are only in this position as the price on carbon was repealed by the vested interests and as everyone can see by who is now benefiting. The time for being nice has long since passed and I do not accept the argument we cannot just switch them off.

    • Barri Mundee 4 years ago

      I agree with your sentiments. I would like them closed yesterday too.

      But the auction process offers a way forward with potentially lower opposition and therefore a much greater chance of success. No funding from governments required under the auction plan.

      Like it or not the Turnbull government is not likely to return to carbon pricing-at least not any time soon so this plan is an acknowledgement of what has a hope of being achievable.

  2. JeffJL 4 years ago

    FFS. Any body else with an asset which had reached the end of its working life would have to close it with no compensation. These two ‘researchers’ wish to have us pay for the plants to be closed. Only the tobacco industry could have such balls.

    My car is getting to the end of its useful life. Would the rest of Australia please pay me to take it off the road?

    Legislate a CO2/kWh and make it tougher every year. Most of the plants have changed hands in the last 10 years and the owners would have known about the coming CO2 crunch. The market is designed so that if you take a risk and it does not come off you lose money. Let those companies lose the money (including all remediation work) so that they invest more wisely in the future.

    • JMac 4 years ago

      Totally agree – f#%k em. The plants and mines were built by the government and have been heavily subsidized throughout their operating lives, the owners have known this was coming for years and have fought and lobbied hard to maintain the status quo to the detriment of everyone else. They took a risk, they’ve fought valiantly, and have succeeded in protecting their profits by delaying the inevitable for many years. Now they lose, and they should face the consequences of taking risks.

      I feel for the workers in the Latrobe Valley, but that’s where the government should be putting their money; retraining and redeploying the workforce – not into propping up GDF Suez’s profit margins.

  3. juxx0r 4 years ago

    Where do they come up with this shite? Just charge them for their non-CO2 emissions and make them pay to pollute.

  4. Robert Comerford 4 years ago

    If the so called direct action plan was not just a con job these plants would be the first thing to remove.

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