This is part 4 of a five part series of articles examining the four accounting tricks that the Liberal-National Party employed in the costing of their energy plan to slow the roll-out of renewables and rely instead on nuclear power. The first article, which provides the overarching context is published here. Part 2 is here. Part 3 is here.
These four accounting tricks act to mislead voters that the Liberal-National Party could lower energy bills through a shift to nuclear when in reality it is likely to increase power bills.
This article focuses on accounting trick three of four: Hide most of the cost of replacing coal with nuclear to outside the time period considered in the costing.
It’s very important to note that the Coalition’s costing of its electricity system cuts out in the year 2051. It only accounts for costs incurred between 2025 to 2051 and anything after that date is ignored.
The LNP’s claim of a 44% saving does not represent the cost of two alternative systems for achieving near zero emissions once they are both completed to see how nuclear might reduce the cost of the system.
Instead, a heavy influence on the cost estimates in the model is the degree to which the scenarios can delay incurring costs in replacing the old, highly polluting and likely to be increasingly unreliable coal power plants.
How is this a problem?
Coal power stations are much like a car – they are exposed to extreme heat, pressure and general mechanical stress that means they wear out and become unreliable as they get old. That’s physics.
Many of us will have experience with an old car that has got to the point where it increasingly encounters mechanical problems and the mechanic is warning us that it really needs some major repairs but these would cost more than the car is worth.
At this point many of us can be tempted to take a gamble by putting off such repairs, and go for temporary, less costly patch-ups and hope the car keeps going. That will be a lot cheaper than buying a new car, at least for as long as we can keep the old car going. But it comes with the risk that it could leave us stranded with a broken-down car at an extremely inconvenient point in time and even pose a danger to our safety and that of others.
The Coalition’s modeled plan chooses to take that gamble with our electricity system. But it doesn’t account for the risks and potentially extreme costs this involves if the gamble goes wrong.
Clare Savage, the head of the Australian Energy Regulator has repeatedly warned that failing to replace aging coal plants risks both power system reliability and also affordability observing, “Coal can’t last until you have nuclear power available.”
The bulk of Australia’s operating coal power stations commenced operation more than 30 years ago. By the 2030’s these power stations, particularly in NSW and Victoria, will be close to, or exceeding, the point when coal power stations are typically retired from service. At this point they are likely to be increasingly unreliable and suffering from mechanical wear and tear that can even lead to dangerous explosions and fires that pose a serious risk to worker safety.
This is not theoretical – several Australian coal power stations have suffered from explosions and fires over the years. It’s also important to note that coal power stations over the next decade will face a level of output ramping to work around rooftop solar that is far more stressful than Australian coal plants have typically faced in the past.
Unless Peter Dutton has a secret plan to prioritise curtailment of rooftop solar in favour of coal generators, this is likely to get worse over time.
Now, the way that the consultant, Frontier, constructed Dutton’s costing is that they space out the cost of constructing new power stations as an annualised payment – a bit like how you’d purchase a new car not by paying for it upfront but rather by taking out a loan and then paying it back incrementally over time.
Except in this case the annualised payment for a new power station is spaced out over several decades and for nuclear it is 50 years. Meanwhile for the existing, very old power plants the original cost of constructing those plants is omitted from the annualised costs.
By pushing out the point at which they replace the old power stations with new ones until the 2040’s, the Coalition gets to hide much of the cost of the nuclear plants until towards the very back end of the projection period. We’ll still have to pay for these nuclear power stations well after 2051, but that’s conveniently left out of the costing period.
Meanwhile, in the scenario said to represent Labor Policy, the coal-fired power stations are replaced quite quickly, so the cost of the new, replacement power stations is taken into account across almost the entire time period considered in the model.
You can get a glimpse of how this works in a chart the modelling consultant provides of the annualised cost, which is provided below (they’ve refused to provide the actual underlying numbers in the chart).
The red solid line is the scenario the Liberal Party claims represents its policy. What the red line shows is that annualised costs grow only slightly up until 2039 with the one exception of a blip upward in 2036. But after 2039 costs grow very quickly.
This growth in costs – both the blip in 2036 and the rapid growth from 2040 onwards corresponds exactly to the timing of replacement of the old coal power plants with new nuclear power plants.
The nuclear plants aren’t really delivering any meaningful saving in the unit cost of energy relative to relying on renewables and storage. Instead, the savings are coming from the Liberal Party delaying the point at which the coal power plants are replaced.
No matter which party is in government, physics still takes its toll on power stations and very old ones will need to be replaced. This will incur costs no matter which technologies we chose to go with.
If we choose to take a gamble that we can string out the life of the old coal power stations, we might save some money in the short-run, but if it doesn’t work out the costs to electricity bills will be very severe.
While building power stations is costly, not having enough power stations is far more costly. We can see that cost through the fact that when coal power stations break down unexpectedly when supply is short then electricity prices typically spike to many multiples of the price needed to pay for a new power plant. That is tolerable if it happens only occasionally, but if frequent we would be far better off building the new replacement plant.
This becomes a particularly significant risk if we choose to go down the path of nuclear power stations. This is not just because we’ll have to wait longer for them to be built, but also because the nuclear industry has been hopeless at accurately estimating their construction timeframes and they come in such large chunks of capacity.
If a utility-scale battery plant comes in late it is unlikely to exceed a year delay, and they come in blocks of a few hundred megawatts. But nuclear power stations come in units of at least a thousand megawatts and can be more than 10 years late (as France has just experienced with its most recently built reactor).
This could create a no-man’s land where multiple coal units are repeatedly out of service and unable to provide reliable supply, but no one is prepared to step into the breach to invest in technologies that are reasonably quick to build. That’s because once the nuclear plant is eventually completed, financial returns in these fast-build power plants will be undermined.
Tristan Edis is director of analysis and advisory at Green Energy Markets. Green Energy Markets provides analysis and advice to assist clients make better informed investment, trading and policy decisions in energy and carbon abatement markets.
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