No, minister Canavan, coal will not be king for 20 more years

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Despite the Coalition cheer-leading, data from AEMO and the Chief Economist shows quite graphically that thermal coal is in structural decline – in Australia and globally.

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If you follow the Minister for Coal Resources, Matt Canavan, you’ll see plenty of cheer-leading for coal:

Reading the Canavan’s tweets and Facebook posts, you’d be forgiven for thinking that AEMO’s much awaited Integrated System Plan says, well, that coal is ‘king’ and will rule for the next 20 years.

But does AEMO actually say that? Here’s a chart showing the relative share of coal, gas and renewables over the next 20 years under the ‘neutral’ scenario.

The ‘neutral’ scenario assumes nothing more than committed projects, the tail end of the RET, the state targets (VRET and QRET) and Frydenberg’s desultory NEG. The ‘neutral’ scenario sees renewables overtake coal sometime in 2032, coal declines from 68% to 22% of the NEM, renewables grow from 24% to 72%. So much for coal reigning supreme!

The chart demonstrates very well that gas, while remaining extremely useful to the energy transition, does not need to increase in order to retire coal — in fact AMEO’s neutral scenario shows gas contributing 8% of electricity in the NEM this financial year and never again exceeding 6%.

(Ordinarily I’d change the colours for the series above, but the defaults were so pretty that I left them as is!)

It should be noted that AEMO’s modelling algorithmically determines the least cost solution that delivers a mix that meets the scenario’s reliability, security and emissions goals. As such, the scenario is a rigorous, dispassionate and optimal solution to the ‘trilemma’ of cost, reliability and emissions.

So what about the other scenarios? What happens if we adopt a ‘fast’ scenario, which assumes strong economic growth, strong electric vehicle uptake and a 52% emissions reduction across the period 2005–2030 (consistent with CSIRO’s Low Emissions Technology Roadmap)?

The ‘fast’ scenario brings forward Australia’s energy transition such that renewables surpass coal in 2026, some six years earlier:

The ‘neutral with storage’ scenario includes the construction of Snowy 2.0 and the Tasmanian ‘Battery of the Nation’ projects. (These are excluded from the ‘neutral’ scenario as the two large pumped hydro projects have yet to achieve ‘final investment decision’). While both projects will no doubt be very handy, AEMO’s modelling shows that the projects won’t have a significant impact on the pace of our energy transition:

AEMO’s scenarios yield a range of growth rates for renewables, and apart from the ‘fast’ scenario, there’s very little to separate them in the decade to 2030. An ‘increased role for gas’ scenario shows that renewables will not fare as well in following decade if gas reduces “significantly in price from current expectations (around $8-10 a gigajoule [GJ]) to around $6/GJ”.

Whichever scenario plays out, we can see very significant reductions in emissions, though, unsurprisingly, progress is retarded if we turn to gas. (Note that this chart is derived from AEMO data and uses an average emissions intensity for each technology, rather than facility level emissions intensity — an approximation for expediency.)

So if thermal coal is in terminal decline in Australia, there’s still a bright future for our coal overseas, right? It’s been booming, right?

Well, not according to official figures from the Office of the Chief Economist. Data from their June report shows that export quantities are flat:

But Canavan has been telling us that coal is booming, right?

Yes, coal (thermal and metallurgical coal) is expected to our largest export this financial year, but it doesn’t sit right with me to claim a 15% reduction in value over two years as a “win”. Any coal workers taking out a mortgage on the back of the Minister’s exuberance will have a right to be livid when their employer cuts back production.

 

So is this talk of ‘structural decline’ of thermal coal just propaganda by activists, or is it for real?

A couple of data points: Due to the high sulphur content of much of Australia’s apparently ‘clean coal’, South Korea’s June imports of Australian coal were down 27% compared with last year, and more ominously for the global thermal coal sector, India’s imports for the last quarter are down 16% on last year. But some might argue that this are just blips. Maybe, maybe not.

Global thermal consumption peaked in 2013. Last year saw a the first (slight) increase after three years of decline. It’s too early to tell if this was a reversal or just ‘noise’, but given the technology drivers —so clearly demonstrated in AEMO’s ISP — my bet is on a long, slow structural decline.

Of course, to give us a fighting chance of a safe climate, the inevitable demise of coal needs to accelerate significantly.

Simon Holmes à Court is senior advisor to the Climate and Energy College, Melbourne University and can be found on Twitter @simonahac 

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27 Comments
  1. Mike Dill 4 months ago

    My belief is that with the current rate of decline in solar and wind costs, the demise of coal will be faster than AEMO ‘predicts’. Less than ten cent per kWh has a lot of people interested, including the generators.

    • Ren Stimpy 4 months ago

      The decline in battery costs will be a more influential factor. The way battery costs are headed, by 2031 a (bloody big) battery will be able to supply the same amount of energy as a coal station for more than 10 days, for about the same cost as a new coal fired power plant. These batteries will out-compete expensive gas peaking power during peak demand, reducing the price of ALL power. Batteries will use in part (the remnants of) coal’s off-peak low price generation to charge up, effectively using coal’s own weakness – that it can’t respond to market fluctuations – to lower all prices and kill coal itself by undercutting gas power bids. The AEMO is correct to PLEAD for existing coal stations to stay open until their intended close-by date.

      • Shilo 4 months ago

        why wont the coal plants use them in their death spin? They can wind back around 1/3 without any problems? Send it into a battery while prices are low, if your right about 10 days full production it makes them a little more flexible, the low cost plants might install 3 of the batterys, so they have a month to play with?
        They have the same people buying and selling power as everyone else? Meaning traders.
        The cost to operate both Kogan Creek and Millmeran is very low, and they will start to use robot mining and maybe even ev mining equipmet, to lower the cost of coal to the plants.
        If there is no cost to carbon those two plants are going to be tough nuts to crack. If your batterys are correct. Or once again I am a complete idiot. So give it to me.
        Even though i am on all of your sides. Still let me have it.

        • Ren Stimpy 4 months ago

          No you’re not a complete idiot, just as I hope I’m not a complete idiot! These are projections based on cost trends, and swelling production volume trends of the new technologies. Energy storage will be extremely cheap in ten years. By 2031 when a new coal plant in Australia would just be getting started, storage will kill that coal plant by harvesting it’s off-peak energy to sell into the higher priced peak demand market (an order-of-maginitude higher priced market).

          Storage will undercut gas, which in the current market structure will starve coal of a ‘merit-order-effect’ – it’s raison-d’etre for profit.

          • Shilo 4 months ago

            Thats good I am not and your are not at all.
            I am just saying why would a power station not buy and install the batterys?
            The two plants i mentioned will be by 2030 debt free I am thinking and so the cost to run them will be very low.
            I dont see them being run out of production if you are right and batterys can store 10 days of their production, thats all.
            I would not imagine those power stations will do anything but try to make money, by selling for as high above their cost as possiable. Their cost being very low at that stage without any carbon tax, but if there is a carbon tax then they will shut.
            I will guess the cost for them to produce a MW will be less than $25 by 2030 without a carbon tax. (thats subject to inflation)
            So if a battery can store 10 days production they will look to buy at least one each I am thinking?. Thats all.
            But as time goes on they will keep falling apart.

          • Alastair Leith 4 months ago

            “batterys can store 10 days of their production”

            That is an absurdly large amount of storage for any given amount of generation. That’s like Snowy 2 scale of storage and the number of times you’d cycle it in a year would not pay for the batteries. I’m a booster on new battery chemistries driving prices of battery storage down, but not to that extent by then.

          • Ren Stimpy 4 months ago

            The last bid in sets the price including for all other generators. A large portion of profitability comes from the high bids of the gas generators in demand peaks, prices which flow through to every other generator. Beyond 2030 when the stored battery energy which will cost the same $/MWh as coal energy is used to supply peaking power instead of expensive gas fired power, there goes a large portion of profit for all generators. Obviously the ones that will have the most exposure to that transition will be the big inflexible coal plants.

            “So if a battery can store 10 days production”.

            It’s possible to do that now, but cost is the barrier today. The point was about the cost of such a battery in 2031, which will be about the same cost as rebuilding the coal plant itself. I wasn’t saying that each coal plant will be replaced by batteries with 10 days equivalent storage, just that it would be possible to do that for the same cost as rebuilding the coal plant.

            FWIW I think batteries will be highly distributed around the grid, and hopefully in the hands of a large variety of owners for the sake of competition.

    • rob 4 months ago

      cats are responsible for 14 billion deaths per annum of native species……They should all be shot

      • Ren Stimpy 4 months ago

        Shooting from the hip again, rob?

        • rob 4 months ago

          No being honest!

  2. Brian Tehan 4 months ago

    He does say that he represents mining – at the expense of consumers and energy planning. Hopefully we will eventually get someone who represents the interests of the people of Australia.

    • Joe 4 months ago

      I thought as a Member of Parliament that the Matteo represents…. people?

    • JackD 4 months ago

      My thought is that dear old Matt is from the Nationals side of the LNP fence in Queensland. His views on mining and coal have that certain Nationals ring to them. {Good to see you’re actively contributing Brian. I don’t have a lot of time these days now that I am back in the big T again}.

      Interesting commentary further down this list, regarding how many years left for Thermal Coal. I can concur with the notion that development of cheaper Battery and Storage technology may actually give these inflexible generators some life – until some future federal government bites the bullets and gets a Carbon Cap & Trade scheme running. Our international conventions which we are signed up to, will eventually force us to or we’ll be subject to punitive measures.

      However by then ACT, SA, Tas wil enjoy high renewable levels and very likely, Vic and Qld will enjoy majority renewable generation (e.g 51 or more %). For NSW, well unless things change radically, it will languish behind the rest of the NEM states. The likely outcome is that SA, Vic and Qld will export their renewable generation over the border, into renewables starved NSW. This will happen very quickly if a) the big 500kV line gets built between Sydenham and Bannaby and b) the 330kV line gets built between Robertson and Darlington Point.

  3. Shilo 4 months ago

    I am pretty sure they still use Coal to make cement mostly worldwide, not sure that will stop soon unfortunately. Its also a double whammy for Co2, a huge amount comes from the limes stone in the process.

    • Andrew Roydhouse 4 months ago

      Actually, funny you should mention cement. Do a search on cement kilns using rubbish as fuel – replacing coal and claims to be ‘environmentally friendly’ as getting rid of waste.

      Almost as bad a some of carvan’s pronouncements.

      • MacNordic 4 months ago

        Depends: If they are either burning the rubbish in any case or sending it to a landfill, chance is the usage in cement production actually is a reduction in emissions (simplified view, admittedly):

        Variant A: Burning coal for cement production and burning rubbish in order to get rid of it: Emissions 1+1
        Variant B: Burning coal for cement production and sending rubbish to landfill (where it will release methane for the next 30 years): Emissions 1+2 (methane is a much more climate unfriendly than CO², low % of landfill gas is used worldwide)
        Variant C: Burning coal for cement production and recycling part of the rubbish: Emissions 1+0,5 (recycling rate is well below 50% in most of the world; assumes burning the rest of the rubbish)

        Variant D: Burning rubbish for cement production and leaving coal in the ground: Emissions 1+0
        Variant E: Using RE sources for cement production and recycling part of the rubbish: 0+0,5 (same burning of 50% of unrecyclable rubbish)
        Variant Utopia: Using RE sources for the little cement usage still around and avoiding all rubbish: Emissions 0+0

        So the burning of rubbish for cement production is definitely not perfect, but one of the more environmentally friendly solutions emissions (CO²) wise…

        • Shilo 4 months ago

          I like the detail you go into Mac, you are very interesting. Oh and bloody smart.

          • MacNordic 4 months ago

            Oh, thanks for the praise – always a pleasure! 😉

  4. Peter F 4 months ago

    Thanks Simon for the data, I was pretty sure that the record coal exports was all due to price.
    I thought that three years ago these blokes told us we would be exporting 490 m tonnes by 2017 and 540 by 2020.
    Looks Like Mark Twain was right again. “A mine is a hole in the ground with a liar beside it”

  5. jonasp 4 months ago

    I humbly disagree with the graph of future coal use. Right now China is speeding up its transition to Clean energy by slashing coal production. This pushes up prices globally which makes coal less attractive in other countries. I Think the transition to 0 coal will take roughtly 12 years.

  6. Radbug 4 months ago

    Piped ultra-cheap Siberian gas is coming to South Korea real soon. Say goodbye to Australian thermal coal exports & 40% of Australia’s LNG exports to South Korea.

  7. Jonathan Prendergast 4 months ago

    The likes of MP Craig Kelly and Carnarvon always point to developing nations as taking up the slack of India and China for our coal exports. South East Asian and African nations are, according to Keely and Canarvon, getting coal power stations. Developed by Chinese companies searching for new markets once China slowed down coal use.

    • PLDD 4 months ago

      I read recently much overseas aid (not just Australian) invests in fossil fuel power in developing countries – they are stuck in the past so keep repeating the same investment strategy.

  8. Ray Miller 4 months ago

    Minister Canavan lies again! The ‘annual’ renewable resource even outstrips the ‘total’ of all fossil fuel resources. So why would we want to burn coal with all the massive costs associated with it, as apposed to converting our energy system to renewables which are the cheapest and cleanest?
    What benefit does Minister Canavan and his party get from supporting such a proposal? There in lies the real question.

  9. John 4 months ago

    Thanks Simon great article. Another lie by this ridiculous government. Tell the country cheap power is around the corner while telling the mining sector they have their back at all cost. This government only benefits itself and disregards everyone else. If only the delusionals that vote for these wreckers would realise it too.
    Regards the better John.

  10. Stephen Allen 4 months ago

    So how is it that elected Canavan defends one source of energy over others?

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