Five things we learned this week … about energy dinosaurs

The Australian government caused outrage among environmental groups after giving the go-ahead to Gina Rinehart and her Indian partners GVK to construct the massive Alpha mine, build a 500km railway and construct a new coal port adjacent to the Great Barrier Reef. The Alpha mine will be one of the first of a slew of coal projects planned for the Galilee Basin. But will they get built?

GVK Hancock spokespeople were cock-a-hoop about the approval and were telling mainstream media stenographers that the mine would make money, given its “free-on-board” or short run marginal cost of just $59 a tonne. But that only refers to the cost of digging up the coal and sticking it on a train. It’s just one part of the equation. These are $10 billion investments and involve massive capital costs. Deutsche Bank estimates the long-run marginal cost of the project is $139/tonne, given that anyone investing in it would want a post-tax return of 15 per cent.

The problem with that is that long term thermal coal prices are just $120/tonne. That does not a profit make, so Deutsche Bank says it is very doubtful it will get developed. GVK Hancock will also be relying on the Indian government pushing through significant rises in consumer electricity costs to absorb the high cost of importing coal. As we pointed out in this article “Is India the fossil fuel nirvana imagined by Rinehart and Co”, those that have been relying on imported coal for new coal-fired plants have been losing money hand over fist.

So is the market telling us something? Will the financial market make the decisions that the Australian government would rather not make? Clive Palmer appears to think so. He is disdainful of the chances of GVK (a company worth just $500 million) getting the project up and running. (Just for the record, Deutsche Bank is similarly pessimistic of his own, given its reliance on GVK Hancock infrastructure). Indeed, Palmer seems to be more focused on his proposals to build the Titanic 2 and a now dinosaur park in Queensland. Is he trying to tell us something?

The wind in the cooling towers

On the subject of dinosaurs, there are those who like to claim that wind energy never succeeded in closing a coal-fired generator, but such claims are starting to look a little foolish. Indeed, following the announced mothballing of part of the capacity of the Tarong and the Yallourn coal fired power stations in the past week, nearly 3000MW of coal-fired generation capacity has been put on ice. That’s actually more capacity than has been built in the Australian wind sector. And the incumbent energy industry has made it clear: build more wind turbines, and more coal fired generation will close.

Still, there is an air of suspicion about the timing of the announced mothballing of Tarong and Yallourn, given that we are now entering the peak demand season, and that the Climate Change Authority is preparing its draft decision on the future of the Renewable Energy Target. The owners of the two affected coal generators, the Queensland Government owned Stanwell Corp and Energy Australia, are among the fiercest opponents of the LRET, which they sell will ruin the market for incumbent generators and bring an end to the world as we know it unless it is curtailed.

Certainly, the Clean Energy Council was not taking any chances, releasing an analysis that the much quoted assumption that the LRET will vastly overshoot its 20 per cent target is arrived at because the figures have been fudged,  because small scale generation such as rooftop solar has been subtracted from demand and added to generation. This effectively means that the impact of small scale solar has been double counted, so the CEC says we are currently aiming at 22 per cent renewable energy rather than 25 per cent. Certainly nothing that could support the $25 billion savings figure touted by the coal and gas industry, even if you did accept their other calculations.

We don’t need a smart grid, we need smart regulators

The world as we know might not be coming to an end, but the electricity grid as we know it certainly is. Not that the energy industry, pricing regulators or efficiency experts such as the Productivity Commission want to admit that. Indeed, while the Productivity Commission’s report on electricity industry included some welcome exposes about the inefficiencies of the industry, its lousy regulations and lazy politicians, it has yet to catch up with the real implications of new technologies, which is that electricity grids are rapidly migrating from the centralized hub and spoke designs of the last 100 years to a decentralized network centred around renewable energy sources, energy efficiency and smart applications.

Contrary to the Productivity Commission’s apparent belief, a smart grid is not a fancy button that you push to reinforce the profits of the incumbent utilities. It’s a whole new way of thinking about the delivery and use of energy. That’s why it’s critical for such organisations to get their mind around solar PV, and not view it solely through the narrow prism of emissions abatement. And as we pointed out yesterday, they can’t even get that right.

Solar PV is here and it is here to stay, and so it other distributed generation. The challenge is to make it as useful as it can be, and that requires sending the right signals. Solar PV, contrary to the commission’s lament, can address peak demand. In South Australia, where it is most prevalent, the market operator says it does so already, to a surprising extent. There needs to be a lot more thought on the pricing of distributed energy, even the use of smart meters. Why not use them to provide price signals and remote management of houses with air conditioning, our most pressing challenge. Unless they can think differently about these things, technologies such as battery storage will come along, and the utilities and the regulators won’t be prepared at all.

The political divide over clean energy

It is getting impossible not to conclude that clean energy is now a partisan concept between the Left and the Right, given the polemics in the US between the Republicans and the Democrats, and the performance of our own state governments. Each of the Coalition states have come down hard against the renewable energy target. Only the Labor governments, South Australia and the ACT, appear to support it.

The ACT, of course, has held its first solar auction and will be the host of the country’s biggest solar plant, a 20MW facility,  hopefully within 12-15 months. It plans auctions for another 190MW, presuming it gets re-elected in the territory’s elections tomorrow. South Australia, meanwhile, has promised to hold a parliamentary inquiry into the possibility of building Australia’s first large scale solar thermal plant as a replacement for the Playford B coal fired generator in Port Augusta. Hopefully, it’s not a fudge.

Meanwhile, South Australia has also unveiled new rules for wind farms, following a one year trial, which will set a minimum setback distance of 1km between houses and turbines and a 2km distance from townships. Third party appeals can be triggered when turbines are within 2km of houses. The rules, which contrast with the arbitrary setbacks of 2kms from all houses in Victoria, have been welcomed by the industry, which says it will help the state reach its 33 per cent renewable energy target by 2030. Wind turbines already provides more energy in the state than coal power.

Anyone know any good Polish climate jokes?

On international matters, there is there are now just 38 days to go until the next round of international climate talks gets under way in Doha, Qatar, which is ranked along with other Gulf states as the most emission intensive nations in the world. This must be a good place to start to talk about the future of the Kyoto Protocol and whatever might replace it, and the radical transformation that is needed to avoid anything more than a 2C rise in average temperatures – a task that is looking increasingly remote, and the consequences ever more alarming, each week.

There is already talk about where the talks move next. According to some secret formula within the UN, the next host would preferably be an eastern European country, the home of Hot Air, the description used not for verbose tyrants or radio talkback hosts but for the one billion tonnes of excess carbon credits given to former Soviet bloc countries, whose economies promptly collapsed.

Poland is reportedly putting its hand up to host the event, which is raising smirks in some circles, and winces in others, because it is that country which has virtually single handedly halted progress in Europe’s climate change policies, and efforts to reform the carbon markets, where prices are struggling around record lows.

Ironically, Poland – which like Australia relies on coal for around 90 per cent of its energy needs – this week introduced some of the most generous feed in tariffs ever seen for solar PV and other renewables. Indeed, not only are its proposed feed in tariffs of 41c/kWh for small rooftop systems up to 10kW more than double those in Germany (and about five times that in Australia), but it is also introducing a renewable energy certificate multiplier of 2.85 for rooftop solar and 2.45 times for ground mounted solar. It’s all part of their plans to increase the contribution of renewables from 2 per cent now to 15 per cent. And they have a carbon price as well. I think we can safely conclude that Campbell Newman is not the prime minister of Poland. What would the productivity Commission make of that?

Which leads us, with no logical sequence at all, to today’s interesting piece of information: According to the local news agency, BJX, the East Inner Mongolia grid has managed to achieve 39% of its power generation from wind power so far this year. The wind generation mix reached its peak on 14 May 2012, accounting for 72% of the total power generation. That’s even better than South Australia.