Why baseload coal has no future in a modern grid

Energy Synapse

Ed: This article was originally published in July, when there was a different energy minister. But considering the Coalition government appears even more committed to coal now it’s worth republishing to shed some light on the debate).

The debate about the need for baseload coal-fired power stations has reignited this week. Energy Minister Josh Frydenberg was quoted as saying he “would welcome a new coal-fired power station for our country because it supplies reliable baseload power and it has served us well in the past and will continue to serve us well in the future”.

There is no doubt that coal has played a significant role in the National Electricity Market (NEM). But can it provide any value in a future highly renewable grid?

Baseload power is a business model, not a technical requirement

Baseload generators such as coal-fired power stations (or nuclear in other markets) have very high fixed costs, but low marginal costs, and are relatively slow at starting up and ramping up and down. In contrast, natural gas generators have low fixed costs, but high marginal costs and are much quicker to start and ramp.

It is from these characteristics that the concept of baseload and peaking generation emerges. The most economic mode of operation for a coal-fired power station is to run at a steady, constant level more or less 24/7.

In contrast, the economic characteristics of gas mean that it is better suited to meet the more variable and dynamic portion of electricity demand.

No role for baseload coal in South Australia

Figure 1 shows electricity generation in South Australia for the previous month (23 May to 22 June 2018) compared with the same period in 2006. We compiled this data using NemSight, a software developed by Creative Analytics (part of the Energy One group).

Back in 2006, there was virtually no renewable energy in South Australia aside from a tiny amount of rooftop solar (<2 MW). The generation mix consisted of brown coal and natural gas. As can be seen from Figure 1, these generators followed the old world paradigm of baseload and peaking generation.

This is in stark contrast to the new world in 2018. For the 31 day period in question, just over 50% of the energy generated in South Australia came from variable renewable energy (wind power, rooftop solar, and large scale solar).

The remaining generation came from dispatchable sources, consisting primarily of gas along with a smaller amount of battery storage and diesel generation. There has been no coal in South Australia since the closure of Northern Power Station in May 2016.

As can be seen from Figure 1, in a highly renewable grid, there is no steady profile left for baseload power to service. A power station that runs at a constant level provides no value or enhancement to reliability in this type of system.

What is needed is highly flexible and fast responding power. This can come from a variety of sources such as gas, hydro, energy storage, and demand response. However, coal is not one of them.

Renewable energy not to blame for high electricity prices in South Australia

Some people reading this may look at Figure 1 and immediately conclude that the replacement of coal with renewables has lead to high power prices in South Australia.

However, South Australia has always had high prices relative to the rest of the NEM. Data from AEMO shows that in 16 out of the last 20 financial years, South Australia either had the highest or second highest wholesale electricity price.

This comes about from South Australia having a peaky demand profile, being over reliant on gas, and a lack of competition in the market, among other factors.

Electricity demand must be in balance with supply at every point in time. This is a true technical requirement. However, there are a number of ways to meet this requirement.

The economic characteristics of coal and gas led to the baseload/peaker paradigm. In the new world, flexibility is king and this means that the economics of coal are just not going to stack up.

Source: Energy Synapse. Reproduced with permission.