It’s ironic that just as Australia’s Coalition government unveils the first steps in what is widely thought to be a plan to encourage new investment in coal-fired generation, the World Bank should quietly announce that it is quitting its last proposed new investment in coal.
Two weeks ago, World Bank President Jim Yong Kim said funding support for the plant in Kosovo, a country with the fifth-biggest lignite reserves in the world, would not go ahead because renewables are now clearly cheaper than coal.
The World Bank is required by its own rules to fund the lowest-cost option. “So without question, we are not going to do that (investment in coal),” he said.
The report by IEEFA details that announced capacity retirements for 2018 will likely total 15.4GW by the end of the year, with another 21.4GW following in the next six years as the low price of renewables and the flexibility of gas underlines their business case. Again, it is the economics that don’t work.
In Australia, the economics for new coal investment don’t work either. Any number of reports have confirmed that, as has everyone from the main lobby representing big generators, the coal utilities themselves, and the chair of the Energy Security Board.
Even without their emissions profile, they are slowly but steadily being priced out of the market for bulk energy by cheaper wind and solar, and are too inflexible to be much use in dealing with sudden changes in demand and supply as the “old world” of baseload coal and even more expensive gas is replaced by “base-cost” renewables and dispatchable generation.
The Coalition government, and the conservative commentators that pull its strings, struggle to get on board with the idea, as they do with the concept of carbon risk – not surprising given they refuse to accept the science of climate change.
But financiers do get it. And if an explicit, economy-wide carbon price is absent now, thanks to the work of the Abbott government, no lender will bet on there being no explicit, or even implicit, price on carbon for decades to come, given the urgency underlined by the recent IPCC report on climate impacts.
That means that banks won’t touch any new investments in coal. The only party that would is the Coalition government itself, led by the man who as Treasurer cradled and marvelled at a lump of coal in the House of Representatives. To prime minister Scott Morrison’s Pentecostal faith, the only change in climate can come from God himself.
God, however, doesn’t do a good line in low-interest loans, contracts for difference, minimum price guarantees, or even capacity payments.
So Morrison’s government is stepping in, and finds itself in an almighty rush to deliver what it calls “fair dinkum” power.
It wants submissions to its discussion paper returned by the end of next week, it wants expressions of interest in new investment delivered over the Christmas holiday period, and a formal tender to be completed by March before it chooses the winner. It will need to do that within weeks before it enters the caretaker period ahead of the election due by mid May.
That’s a mighty short time frame, particularly as any formal tender will require contracts in place with customers and a huge variety of options available for “dispatchable” or “firm” generation, which still has no firm description. It lends support to the idea that it may have already made up its mind.
As David Leitch, ITK analyst and RenewEconomy contributor observed in this week’s Energy Insiders podcast: “It’s a disgrace.” Worse than that, he suggests, the idea that new coal investment is needed or is even a remotely good idea “is fair dinkum bull-shit.”
But here we have it. The “discussion paper” released last week by energy minister Angus Taylor, highlights the extent to which the government is prepared to shift the board to make sure that the answer to whatever question is asked is coal.
Emissions are disregarded. The government is asking only that the project “would be unlikely to result in an increase in electricity sector emissions to a level that is more than minus 26 per cent of the sector’s 2005 levels by 2030.”
Given that this target will likely be met by 2021 or 2022, with further decreases over the ensuing years, even new coal generators would not change that. And there is no comparison with business as usual.
The ACCC had pinned its argument for an underwriting scheme on the need for new dispatchable generation to increase competition, so it suggested any tender not be open to any existing player that already holds more than 10 per cent of a state market. That would rule out the big players who are so rampantly gaming the market (my words, not the ACCC’s, alas).
But the government has ditched that limitation, meaning that life extensions could be available to more than just Vales Point (Sunset Energy), Mt Piper (EnergyAustralia), and Milmerran.(Intergen) – it could be available to all the big utilities that currently dominate the market.
Asked about this, Taylor’s office said: “The Government’s goal is to increase reliability and bring down prices. The government has included criteria to ensure that this program does not further entrench incumbents; however, if a market player above 10 per cent wishes to participate they will be facilitated, dependent on the project being brought forward at or around cost.”
And just to make it clear, this is not just about “new generation”, it is also open to existing plants extending their life. That can only apply to coal-fired generators.
The big question is whether the government can just make a unilateral decision about this contract, or whether it needs the support of parliament. No one seems to know, as the options are so variable.
Taylor’s office says COAG approval is not required. But, it noted: “Legislation may be required for some of the proposed financing options.” It would not say which.
It is starting to look like the last act of a desperate government desperate to “do something” for the fossil fuel lobbies that have backed it since it won government in 2013.
The Coalition ditched the carbon price, defenestrated the Climate Change Authority, and slashed the renewable energy target, but it couldn’t stop the $15 billion in wind and solar investment that the government recognises will reduce prices and deliver the sector’s emissions cuts a decade ahead of schedule. It must feel it owes the fossil fuel lobby something.
Labor, while opposing the idea of contracting new investments in coal, has said it won’t reverse the contract if it wins power – as all the polls currently suggest – in the federal election that must be held by mid May.
The Greens are appalled. “If a contract to build or extend a coal-fired power station is signed before the next election, Labor has just confirmed they’d wave it through if they proceeded to form government,” Greens spokesman Adam Bandt said,
“Signing a contract for a new coal-fired power station is like signing a death warrant for the Australian people. This despicable admission from the Labor party shows that they’re as bad as the Liberals on coal.”
And doctors, directors, and most business would feel the same way. And in another irony, if this one more coal investment for the road does come to pass before the next election, it may just happen as the first Australian companies commit to going 100 per cent renewable.