Why are we not building clean energy coal-fired power stations?

Ross Greenwood speaks to COAL21 CEO and Executive Director of Coal at the Minerals Council of Australia, Greg Evans, about why Australia is not investing in clean coal-fired power stations after a new state-wide black out in New South Wales last week.

Introduction: Why are we not building clean energy coal-fired power stations?

Ross Greenwood:  Well come back to Money News right around Australia. You may be aware that earlier this week we created something of a storm by not only highlighting the fact that New South Wales last week almost had a serious power crisis. This is when there was unseasonal winter weather came through. There were already scheduled outages of coal-fired power stations. Then there were three other power stations that unexpectedly went offline. This is what happens when you get aging coal-fired power stations, you can get outages from time to time.

The problem is, as most people who don’t really look at this stuff, don’t appreciate, that you’re still get it getting the bulk, the overwhelming majority of your electricity from coal-fired power. If you take coal-fired power stations out of the system, you have got either an unstable system or indeed you’ve got a system that could be potentially if there are other outages, the subject of the blackout. That was a warning also from the Australian energy market operator, which is, as I say, is an agnostic government body that runs the power grid.

It doesn’t care where it gets the electricity from. It also warned again on Monday about the closure of the Liddell power station. You could argue that the Liddell power station is getting old, it needs to close, but then if you get rid of a coal-fired power station, you’ve got to replace it with something. That would appear to me, at least anyway, that what the likely replacements could be still do not provide the never-ending supply of electricity as can come from a coal-fired power station.

Then you go to the next stage and you say to yourself, “Well, if building a new coal-fired power station was economically viable, somebody would probably go and do it.” Something’s not right in the system here. It has been in the past, subsidies that have been given to wind and solar power that have made them more attractive to build. Problem is if you choose to, and get out of the energy market because maybe the price is unconducive and you can produce the energy more lucratively elsewhere, you can turn off your wind turbines, you can turn off the solar if you want to not produce.

This leads to suggestions about whether markets can be manipulated, that’s not good enough either. Then you go to another thing. In the wake of the Fukushima nuclear disaster in 2011, of course, Japan closed down many of its nuclear power stations. It had to. Then the next phase of it was, it’s going ahead as of last year to build 45 new coal-fired power stations. High energy, low emissions, using high quality black coal. Guess where most of that black coal is coming from? It’s coming from Australia.

If Japan is building 45 new coal-fired power stations and it’s economically viable for them to do so using Australian coal, why doing the same? It’s just beggars belief. I thought what I would do is go to Greg Evans, chief executive of COAL21, executive director of coal at the minerals council, because they did a study on this. They just actually got somebody to try to do the economic case of building a new coal-fired station. He’s on the line. Many thanks for your time, Greg.

Interview with: Greg Evans, CEO, COAL21

Greg Evans: Thanks very much, Ross.

Ross Greenwood:  I tried to set the scene, but the question still remains that nobody is stepping up to build a coal-fired power stations in Australia. Why not?

Greg Evans:  Your analysis was spot on, and why isn’t happening. As you pointed out, we got the right coal, the highest quality coal, which is ideally match to these high-efficiency, low-emission power stations. We’re very much putting the case that as older power stations are phased out, older coal-fired power stations, we should certainly look at the possibility of replacing those with modern high-efficiency, low-emission power stations as is happening throughout Asia.

Ross Greenwood:  I get that. That’s exactly– That’s a given. That is exactly as it should be. The question is why has there been no plan to put one of these things in?

Greg Evans:  I don’t think our politicians or policymakers understand the full enormity of having unreliable power.

Ross Greenwood:  Okay, hang on, stop. Go back one step. Why are the politicians even involved? If a private sector group wanted to go and build one of these things, they’d go and get the planning permissions, they turn up, they’d go and do it. Why wouldn’t they? Where’s the business case?

Greg Evans:  They’re still involved in setting the policy, et cetera. At this stage, no. We’ve had approaches from international companies that build coal-fired power stations. They’d be quite happy, they understand the basic economics. They would be quite happy to proceed, but one of the uncertainties is regarding future government policy and ensuring the system is conducive to a large-scale investment. A proposal for, say, a 1000 megawatt heavy coal-fired power station is something over $2 billion. If you’re making that sort of expenditure decision, then you want to be more certain about the government policy which is operating.

Ross Greenwood:  Which government policy?

Greg Evans:  They’d need to be certain that future– That they can actually secure an off-take for their power, that electricity that they produce. They also need to be certain about future environmental policy, that the power station by some future government may not be maybe shut down due to extreme policies in regard to the environment and emissions.

Ross Greenwood:  What you’re telling me here is that one of the reasons why a new high-energy, low-emission power station fuelled by coal is not likely to be built by somebody putting $2 billion in to produce 1000 megawatts when coming off stream from 2022 the Liddelle power station, AGL when it closes that. That at the moment is about 1500 megawatts or so, maybe a little bit more than that.

As a result, the case to put in a 1000 megawatts of coal-fired power, using this is not there because of the political risk that in the future they might be new emissions targets, there might be a carbon tax, they might be something of that nature, which would therefore mean the case for putting in a coal-fired power station is out the window. Then if it’s not put in, the actual risk of actually running out of electricity on peak times or having places like the Tomago aluminium smelter without electricity at key and crucial times is also going to be increased.

Greg Evans:  That’s great, but I think that these problems aren’t insurmountable. Government policy can be such which would give enough comfort to someone, an investor to build a coal-fired power station, if they can get assurances regarding the long-term proposition of a coal-fired power station, that can certainly happen. Politicians and policymakers need to be aware, as you pointed out, what is the economic downside if we can’t provide affordable electricity to consumers, not only residences, but also business. We’re already seeing that play out. We’re probably not attracting large scale business, energy-intensive businesses because of the cost of power.

As I said, politicians and policymakers need to be aware of that negative economic ramification.

Ross Greenwood:  Do you believe inside the federal government right now. Leave aside the Greens and leave aside the Labour Party, we sort of know where their policies is going to lean towards, but inside the government right now, do you believe that there is a very green tinge inside this current government that basically is trying to quell any future investment in coal-fired power stations?

Greg Evans:  From our discussions, we talk to people that very much understand this issue, understand the long-term implications and are very strong supporters of coal-fired power stations.

Ross Greenwood:  Do you really talk to the ones who are actually supporters of that or do you speak to the ones inside government who are not supporters of it, who really do believe that we should have emissions targets and that we should really be- still try to edge towards green power, which, as we know, can be either turned on or turned off, or indeed sometimes doesn’t work at all?

Greg Evans:  What we have is an influential core people within the coalition government that understand the need for reliable energy, which can provide affordable energy but it can also lower emissions. Certainly the answer there is having power stations. There’s a core of that. We just need to make that case and prosecute that case to ensure that coal isn’t ruled as a future energy proposition.

Ross Greenwood:  It seems to have been if there’s pressure on banks, for example, and some banks have already said that they will not finance such investments. That also makes it increasingly difficult to build the business case if one of the risks you’ve got is you can’t get the finance.

Greg Evans:  Indeed. They’re responding to uncertainty with regard to a government policy and energy policy. We believe we can resolve those issues. Let’s face it, they resolved those issues throughout Asia, in Japan and other advanced countries. We think we should be able to make the case here. With the retirement of all older power stations, then the case is pretty clear that we need affordable, reliable power. Our study you mentioned last year stated says that the cheapest power is actually coal power. We’ve got the finest coal for that purpose. It just makes economic sense to go that way.

Ross Greenwood:  It’s going to be interesting to watch exactly what takes place. The pressure has got to come on because the fact. Australian industry, but also households, are they don’t want massive power bills as a result of shortages or neither they want their lights going out, or dimming as a result of a lack of electricity, which almost happened last week. Greg Evans is a chief executive at COAL21, an executive director of coal at the Minerals Council. He has a vested interest, there is no doubt about that. That’s his job.

The truth of the matter is, when you go back to last week and realize that outages of coal-fired power stations almost caused a crisis. Something’s got to be done. There’s no doubt. Then you go and see that 45 new coal-fired power stations being built in Japan to replace many of their nuclear reactors that have come off stream after Fukushima. That’s going to be fuelled by Australian coal. We’re happy to ship it out to somebody else and have them burn it. Why on earth don’t we use it for our own natural advantage?

That’s the thing that I keep on having I hope sensible discussions with you about because it just defies logic if you do something else.

[00:10:16] [END OF AUDIO]

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