Shift from base-load slashes value of state coal generators

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The decline is demand, the incursion of renewables and the subtle shift away from base-load generation is reducing the value of black-coal fired generators. The market is changing so much that the state-owned assets held by NSW and Queensland may be unsellable, at least at the prices they are hoping.

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It seems certain that the NSW and Queensland governments will have to take significant write-downs on the value of the fleet of coal-fired power generators, and the assets may not be able to be sold because of the radical reshaping of the Australian electricity market.

The NSW government is seeking buyers for its coal-fired generators, and a price of $3 billion, and the Queensland government is mulling over recommendations that they should do the same. Any sale of those assets would likely be held in 2015/16.

But are they worth anything? Industry insiders say there are unlikely to be any buyers at the price the governments are expecting- because black coal-fired generation is becoming increasingly sidelined by the unanticipated fall in demand, the impact of renewables such as rooftop solar and wind farms, and the effects of the carbon price. Many of the black coal-fired generators are operating at barely more than half their capacity, as the concept of baseload generation gradually recedes.

Michael Fraser, the head of AGL Energy-  which, it should be noted, is not a buyer of the NSW generation assets – earlier this month questioned the value of the NSW fleet of coal-fired generators.

In a presentation to the Macquarie Australia conference, Fraser said the value of NSW generation assets for sale was in doubt given the NSW demand outlook, the surplus capacity in the state, and forward curve for wholesale electricity prices, which are at their lowest level ever if the carbon price is removed. (NSW black coal generators received no carbon compensation under the Federal Government’s Clean Energy Future package).

To illustrate his point, Fraser used this graph below, showing that even on the day of record temperatures in NSW on January 18 – Sydney reached 46C – the state still had a massive amount of excess capacity, and the wholesale price barely broke above $150/MWh. Baseload generators are often described as low cost, but they rely on midday peaks which can push the prices as high as $10,000/MWh to boost their profits. Around one quarter of generator revenues are sourced from 40 hours of such peaks a year.

Screen Shot 2013-05-21 at 6.22.10 PM

NSW Premier Barry O’Farrell has said that the state will only sell its remaining generators for the asking price of $3 billion dollars – “and nothing less”. But insiders have suggested to RenewEconomy that no bids at anywhere near that price has been forthcoming. \

The Greens have raised concerns that if any sale are concluded, they will come with hidden subsidies. To add to the problems of demand and electricity prices, many of the generators have benefited from cheap coal supplies, and these contracts need to be renegotiated. This is where subsidies could be hidden.

In Queensland, the situation is even worse. As we noted last year, the government owned generator Stanwell Corp had revealed in its annual report last year that  – on average during 2011/12, the state had 4,500MW of capacity more than it needed.

This was another way of saying that its entire 4,000MW portfolio of mostly coal and gas fired generation was surplus to requirements for much of the year. The Queensland generators had previously relied on exports to NSW, but even that is not needed given the graph presented by Fraser.

The fact that coal-fired power generation has suffered badly in recent years has been well documented by market analysts. Pitt & Sherry, which provides a monthly update, published this graph earlier this month to highlight how production of black coal-fired generators

Screen Shot 2013-05-07 at 1.06.17 PM

One of the main reasons for this was the lack of carbon compensation, which means that black-coal fired generators are more exposed to changes in demand and price. Brown coal generators are cheaper, and they have received compensation.

And the growth of renewables has not just reduced demand in the case of rooftop solar, it is changing the nature of the markets, requiring more flexible generation capacity to respond to changes in output and demand. Black coal fired generators are poorly equipped to meet this requirement, and to falling prices, so some 3000MW of capacity in Australia has been closed in the last 18 months, some of it permanently.

Australia is not unique in this case, because it is a well documented impact in Germany, where power producers have decided not to invest in any new baseload generation beyond the ones that have already commenced production. In the US there is a similar story, with base load generators, including nuclear ones, pushing back on renewable energy targets for fear it will undermine their own business case.

This explains why the governments of NSW and Queensland have been so dogged in arguing that not only should the carbon price be removed, but the renewable energy target be diluted, the rollout of solar PV should be curtailed by higher fixed charges, and the energy efficiency measures should also be wound back.

 

 

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29 Comments
  1. Hasn’t Campbell Newman just done some smart footwork to lock electricity consumers in to fossil-fuel powered electricity? I write as a total amateur in matters energy-economic.

  2. Arjan Wilkie SSE 6 years ago

    Propping up the black-coal generators by removing incentives for cleantech is an excellent example of closing the gate after the horse has bolted. the black coal generators are doomed; their business model is broken; the future does not require them; removing cleantech incentives will just buy them a bit more time, but their fate is sealed. This is a good thing for us all. The only losers are the employees in the industry, of which there are thousands, but with a decent set of adjustment policies, all these jobs could be replaced in green industries, and be more sustainable to boot.

    • Concerned 6 years ago

      Who props up the coal generators?

      • Arjan Wilkie SSE 6 years ago

        if you read the article above you will find out!

        • Concerned 6 years ago

          Exactly ,nobody.

          • Louise 6 years ago

            If the costs are not paid for by an identifiable entity, then the costs are paid for by society in general.
            Who pays the medical bills of people with respiratory decease?

            The cost is not paid for by those who cause the decease in the first place, which is the big polluters, but by the individual sufferers.

            The way it is now is totally unfair.

            The fossil fuel companies should be made to pay for the damage they cause to human health, safety and the environment.

          • Concerned 6 years ago

            Louise, we are talking about coal and gas powered generation. This does not cause massive health problems in Australia as the generating capacity is generally located far from major population areas. All the literature quoted here relates to studies done in Europe and USA/

            Is suggest you follow the use of motor vehicles and trucks where there is evidence of health problems. I dealt with asbestos and other related respiratory claims as an investigator for a State WorkCover for 15 years, and saw no such claims, even from those who operated and worked in the power stations.

  3. Bob_Wallace 6 years ago

    ” In the US there is a similar story, with base load generators, including nuclear ones, pushing back on renewable energy targets for fear it will undermine their own business case.”

    Justified fear. On May 7, 2013 the Kewaunee, Wisconsin reactor shut down. It was losing money and no buyer could be found. In February it was announced that the Crystal River rector in Florida would not be repaired and brought back into service. The cost of repairing it would have made in non-competitive in today’s electricity market.

    That’s two reactors closed in the US so far this year. The twin San Onofre reactors in California are offline for repairs and speculation is rampant that they won’t be brought back on later in the year.

    At the same time coal plants are closing with around 100 in total to be shut. The cost of upgrading to meet pollution standards would make it impossible for them to turn a profit. The US is building no new coal plants to take their place.

  4. Guest 6 years ago

    I’m sorry but Germany is expanding it’s coal power stations due to the failure of renewables to provide the necessary power required. Last year they were forced to by nuclear power from France as their solar systems failed, as was Denmark whose wind farms also failed to produce the required power. France also provided nuclear power to the UK also due to failed wind power.

    The new German coal power stations will burn lignite coal from Poland.

    Black coal is the cheapest and most efficient power generation system and we should be building new power stations like Kogan Creek and have the cheapest power in the world, the only thing stopping us is the mythological failed religion of global warming!

  5. janama 6 years ago

    I’m sorry but Germany is expanding its coal and gas power stations because renewables, wind and solar, have failed to deliver the required power forcing Germany, Denmark and the UK to buy nuclear power from France.

    Germany’s new coal power will burn Lignite coal from Poland.

    Black coal is the cheapest and most efficient method of producing cheap electric power and we should be building more power stations like Kogan Creek in Queensland.
    The only thing holding us back is the failed mythological religion of Global Warming’s influence on our decision makers.

    • Bob_Wallace 6 years ago

      Germany’s new coal burning plants are replacing (not adding to) the older plants that either have been or will soon be decommissioned. These new plants were planned and construction was started prior to the decision to close nuclear plants.

      By 2020, 18.5 gigawatts of coal power capacity will be decommissioned, whereas only 11.3 gigawatts will be newly installed.

      Furthermore those plants will be more efficient, releasing less CO2 per unit electricity produced than are the ones they are replacing. And the new coal plants are partially load-following.


      In 2012 Germany exported 66.6 TWh of electricity, earning 3.7 billion euros or 5.6 cents/kWh.

      In 2012 Germany imported 43.8 TWh of electricity, paying 2.3 billion euros or 5.25 cents/kWh.

      http://www.renewablesinternational.net/german-power-exports-more-valuable-than-imports/150/537/61663/

      In 2010 Germany imported 9,571 million kWh from France and exported 16,081 million kWh to France. +68%

      In 2011 Germany imported 10,834 million kWh from France and exported 8,445 million kWh to France. -22%

      In 2012 Germany imported 5.200 million kWh from France and exported 13,985 million kWh to France. +63%

      The 2011 negative net happened before Germany’s nuclear plants were closed.

      Starting in 2008 Germany has been a net exporter of electricity to the rest of Europe.

      2008 26.20%
      2009 31.20%
      2910 32.46%
      2011 32.46%
      2012 77.31%

      http://www.indexmundi.com/g/g.aspx?v=83&c=gm&l=en

      Obviously you are also wrong about climate change.

      • janama 6 years ago

        Germany is one of the largest consumers of energy in the world. In 2009, it consumed energy from the following sources:[17]

        Oil 34.6%
        Bituminous coal 11.1%
        Lignite 11.4%
        Natural gas 21.7%
        Nuclear power 11.0%
        Hydro- and wind power 1.5%
        Others

        Renewable energy is more present in the domestically produced energy, since Germany imports about two-thirds of its energy.

        Other? They don’t even list it as it’s obviously below 1.5%!

        from Wiki.

        From CIA factbook:

        Electricity – exports:57.92 billion kWh (2010 est.)country comparison to the world: 4Electricity – imports:42.96 billion kWh (2010 est.)country comparison to the world: 5Electricity – installed generating capacity:153.2 million kW (2010 est.)country comparison to the world: 7Electricity – from fossil fuels:55% of total installed capacity (2011 est.)country comparison to the world: 145Electricity – from nuclear fuels:23% of total installed capacity (2011 est.)country comparison to the world: 7Electricity – from hydroelectric plants:3% of total installed capacity (2011 est.)country comparison to the world: 131Electricity – from other renewable sources:13% of total installed capacity (2011 est.)country comparison to the world: 15

        Yes it exports when the sun shines and wind blows but it imports when neither happen.
        Which is usually when they need it.

        Let’s not discuss climate change as you are obviously a member of the church.

        • Bob_Wallace 6 years ago

          Energy. You move the goalpost.

          Yes, Germany imports oil for transportation. Germany, as per the data I gave you, is a net exporter of electricity.

          And you pick 2009 as your reference year. Prior to Germany closing its nuclear plants.

          In 2009 Germany had 10,566 MW of solar, by the end of 2012 Germany had 32,643 MW on line.

          In 2009 Germany had 25,703 MW of wind, by the end of 2012 Germany had 31,332 MW on line.

          Now, from the same Wiki page you copied Germany’s 2009 data you could have copied –

          “The share of electricity produced from renewable energy in Germany has increased from 6.3 percent of the national total in 2000 to over 25 percent in the first half of 2012.”

          http://en.wikipedia.org/wiki/Energy_in_Germany#Renewable_energy

          • janama 6 years ago

            It’s not about how much power you export and import, it’s about how much and when you need it.

            Let’s look at Australia where I come from.
            We require baseload power of 18GW because at 4am we still need 18GW to run hospitals, factories, transport, street lights etc. We have a set of coal power stations that run 24/7 to supply that demand. Not all are operating as some are in maintenance but between them they supply our baseload power.

            There is no renewable system that can deliver that constant power base.

            We use hydro, gas and renewables to make up the extra demand to 25GW during peak times.

            But our peak times are in the morning when we all get up, cook our breakfasts, travel on public trains, fire up our businesses etc. The next max demand is in the evening when we all go home, cook our meals and watch the tele or go out to a show etc.

            Solar peaks at midday when we need it the least except on maybe a hot day in summer..

            Sure Germany exports that power but it’s not real is it! No one needs it as their base load power systems are up and running, it’s just paper money – you can’t turn down a coal or nuclear power station like you turn down the sound of your television screen – they are either on or off.

          • Bob_Wallace 6 years ago

            “It’s not about how much power you export and import, it’s about how much and when you need it.”

            Right. It is about supplying the electricity desired when it is desired.

            “There is no renewable system that can deliver that constant power base.”

            Well, there actually are several, about ten, that get 100% or very close to 100% of their electricity from renewables. But they are grids that have a large amount of available hydro.

            You are correct that there are no 100% non-hydro renewable grids. But that’s only because we have yet to build one.

            “Impossible”, you say? Let me share my summary of an interesting piece of research…

            Researchers at University of Delaware used four years of weather and electricity demand/load data in one minute blocks to determine 1) if a combination of wind, solar and storage could meet 99.9% of demand and 2) the most cost effective mix of each to meet demand.

            The data for 1999 through 2002 came from the PJM Interconnection, a large regional grid that services all or part of 13 states from New Jersey west to Illinois, from Pennsylvania south into Tennessee and North Carolina. This is the world’s largest competitive wholesale electricity market, serving 60 million customers, and it represents one-fifth of the United States’ total electric grid.

            They used currently available technology and its projected price in 2030. They included no subsidies for wind and solar in their calculation. They did not include hydro, nuclear, tidal or other possible inputs. They also did not include power sales to and purchases from adjacent grids. They used three existing storage technologies – large scale batteries, hydrogen and GIV (grid integrated vehicles).

            They found that by 2030 we could obtain 99.9% of our electricity from renewable energy/storage and the remainder 0.1% from fossil fuels for about what we currently pay “all-in” for electricity. The all-in price of electricity which includes coal and oil produced health costs currently paid via tax dollars and health insurance premiums.

            During the four year period there were five brief periods, a total of 35 hours, when renewables plus storage were insufficient to fully power the grid and natural gas plants came into play. These were summer days when wind supply was low and demand was high. The cheapest way to cover these ~7 hour events was to use existing natural gas plants rather than to build additional storage. Adding in hydro, tidal, etc. would further reduce this number.

            After 28 billion simulations using differing amount of wind, solar, storage and fossil fuels they found the best solution was to over-build wind and solar and at times simply “throw away” some of the produced power. Building “too much” wind and solar turns out to be cheaper than building more storage given the storage solutions we have at this time. Finding markets for the extra production, selling electricity to offset natural gas heating for example, further reduced costs.

            Budischak, Sewell, Thomson, Mach, Veron, and Kempton Cost-minimized combinations of wind power, solar power and electrochemical storage, powering the grid up to 99.9% of the time Journal of Power Sources 225 (2013) 60-74

            https://docs.google.com/file/d/1NrBZJejkUTRYJv5YE__kBFuecdDL2pDTvKLyBjfCPr_8yR7eCTDhLGm8oEPo/edit

            Remember, this is a “worst case” study – only solar and wind. Add in hydro, tidal, geothermal, and residual nuclear and the price drops because less storage will be needed. The same happens when there is exchange of power between grids.

            And those 2030 wind and solar prices? The authors used somewhat dated (2010) projections. Current prices have already brought the cost of wind down to their projected 2030 level and solar is already cheaper. We almost certainly will have better/cheaper storage than they used in their study. It’s going on the grid now.

            So, yes, we can have a renewable grid that gives us electricity when we want it. And it’s very likely that our electricity will cost less then than it does now.

            This is just one of several studies….

          • janama 6 years ago

            I’m sorry but you said:

            But that’s only because we have yet to build one.

            because we can’t, if we could, we would have – no system has been sponsored by additional, unconditional finance than renewable energy!

            And it’s failed. as Donna points out.

            http://nofrakkingconsensus.com/2013/05/29/green-energy-unicorns/

          • Bob_Wallace 6 years ago

            Let’s see, we have your opinion and about 20 published peer-reviewed papers that say your opinion is wrong.

            And we’ve got Donna’s article that cherry-picks renewable projects which haven’t succeeded and ignores the thousands, now millions, that have.

            It’s pretty clear to me where the failure is located….

          • janama 6 years ago

            The problem Bob is that anyone can peer review today! Look at our climate commissioner David Karoly, he published a peer reviewed paper, Gergis et al, yet it was destroyed within two days on the peer reviewed public internet!

          • janama 6 years ago

            estimates of how much material would be needed to provide huge solar systems in central australia require all our transport to be tied up for the next 10 years delivering hardware to the power stations.

            It’s all because of the myth that CO2 is a pollutant!

            ask Matt Ridley….

          • Bob_Wallace 6 years ago

            I’m cutting this conversation off.

            I’ve got no time for someone whose head is stuffed with garbage.

            Carry on on your own. I don’t think anyone is going to take your stuff seriously. You’ve established your reputation.

          • janama 6 years ago

            so you disagree with Matt Ridley – goodnight!

          • janama 6 years ago

            It all boils down to your belief that we are a curse on the planet, we are not, what we do is natural, we are nature damn it!

          • Bob_Wallace 6 years ago

            Smallpox and cancer are also natural….

          • janama 6 years ago

            so you compare me to the smallpox virus? go away!

          • janama 6 years ago

            You are so typical of the warmists – you come out all guns blazing yet when you are blown away you don’t say, wow I never looked at it like that, you just take your bat and ball and march off saying I won’t discuss this with you anymore and become all personal and start with the Ad Homs.

            your cause is dead in the water – the planet hasn’t warmed for the past 16 years (please don’t reply with the stock reply ” oh the past decade has been the warmist ever” or “the heat is in the oceans”

            we are tired of those replies. YOu’ve done them to death.

          • Bob_Wallace 6 years ago

            Not everyone can get a paper published in leading journals. There have always been a few journal with low standards that will publish articles which respected journals refuse. One has to know a bit about a field before they know what they are reading.

            And once in a while a study which turns out to be faulty gets published in a major journal. Whenever something is published it goes from being looked at by the editor, a few reviewers and whomever the author showed the paper to prior to publishing to being seen by thousands of knowledgeable people. That’s how science works.

            The rule of thumb I always taught my graduate students was treat an unusual finding as “interesting”, but wait to see how it gets treated during the next several months. If a couple of studies are published that support that finding then start taking it seriously.

          • janama 6 years ago

            Do you want me to list the failures?
            Solar thermal is going to give us power to drive the US

            http://www.abc.net.au/7.30/content/2007/s2047734.htm

            We are going to build a solar tower to run XX number of homes in Mildura,

            yes – we did that story on Beyond 2000 in 1987!

            We are going to produce base load power from hot rocks in Innaminka.

            wrong – they have failed in all test drillings. They can’t even supply Innaminka population 105 with power. (I’m guessing the pop of Innaminka)
            The story goes on and on and this site is one of them

            As Darryl Kerrigan said in The Castle:
            You’re dreamin!

          • Bob_Wallace 6 years ago

            Would you like a list of the roughly 1,000 US car manufactures who failed? Notice that we’re driving cars?

            Would you like a list of the roughly 150 US computer manufactures who failed? Perhaps even you use a computer.

            We’ve been using thermal solar in the US for decades.

            “Geodynamics Limited’s 1MW Habanero Pilot Plant has been successfully commissioned and has produced Australia’s first Enhanced Geothermal Systems (EGS) generated power. The company has now commenced the planned demonstration trial and testing program which is scheduled to run for approximately 100 days with completion in August 2013.

            “http://www.pimagazine-asia.com/news/smart-energy/geodynamics-produces-australias-first-enhanced-geothermal-systems-generated-power/

            “Geothermal company Ormat last week said it connected the first enhanced geothermal well to the electricity grid, adding an additional 1.7 megawatts to the Desert Peak project in the Nevada desert. ”

            http://www.technologyreview.com/view/513816/cracking-rock-to-get-more-from-geothermal-fields/

            Listing failures is meaningless. It’s the successes that show us what works and the route to take.

          • Bob_Wallace 6 years ago

            And since you are from Australia and on this site you might want to read this…

            https://reneweconomy.com.au/2013/baseload-power-is-a-myth-even-intermittent-renewables-will-work-92421

            And this…

            http://www.ies.unsw.edu.au/sites/all/files/profile_file_attachments/LeastCostElectricityScenariosInPress2013.pdf

            In the Ellison paper you can read…

            “Numerous scenario studies have been published that model the potential for countries, regions, and the entire world, to meet 80{100% of end-use energy demand from renewable energy by some future date, typically mid-century. National scenarios exist for Australia (Wright and Hearps, 2010; Elliston et al., 2012b), Ireland (Connolly et al., 2011), New Zealand (Mason et al., 2010), Portugal (Krajacic et al., 2011), the Republic of Macedonia (Cosic et al., 2012), Japan (Lehmann, 2003), the United Kingdom (Kemp and Wexler, 2010), the United States (Hand et al., 2012), Germany (German Advisory Council on the Environment, 2011) and Denmark (Lund and Mathiesen, 2009). More broadly, regional studies have been produced for Europe (European Climate Foundation, 2010; Rasmussen et al., 2012), northern Europe (Srensen, 2008), and several studies of the global situation have been produced including by Srensen and Meibom (2000), Jacobson and Delucchi (2011), Delucchi and Jacobson (2011), Teske et al. (2012) and WWF (2011).””

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