Turnbull’s Reliable Power Play: Australian PM Pushes Coal-Fired Future

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Patrician and aloof, Malcolm Turnbull is grappling with an energy debacle, that took root in South Australia (aka ‘Australia’s wind power capital’) and, as a result of the Federal Large-Scale RET, threatens to burst the borders and destroy the entire Eastern Grid. Incidentally, geographically the single largest interconnected electricity grid on the planet.

STT hears from its Canberra sources, that Turnbull is terrified of the political ground to be lost if South Australia’s power pricing and supply calamity goes national.

In a move that can only add to what the wind industry sees as intolerable uncertainty, Malcolm Turnbull has recently started singing the praises of the latest, state-of-the-art coal-fired power plants.

Turnbull backs cleaner coal for hitting renewable target
The Australian
Rosie Lewis
18 January 2017

Australia should be a world leader in demonstrating that carbon emissions can be lowered by replacing ageing electricity generators with new and emerging technologies to produce cleaner coal, Malcolm Turnbull has declared.

The Prime Minister also hit back at Tony Abbott days after he called on Mr Turnbull to dump the renewable energy target, saying renewables had a “role” to play in reaching the government’s carbon reduction target of up to 28 per cent by 2030.

As revealed in The Australian yesterday, research commissioned by the Turnbull government has estimated the country’s emissions would be cut by up to 27 per cent if coal-based power generation ran on “ultra-super-critical-technology” used in other parts of the world.

Carried out by the Department of Industry, Innovation and Science, the research showed emissions would be reduced even further — by up to 34 per cent — if the technology now in development was adopted across Australia.

Mr Turnbull acknowledged coal would be part of the world’s energy mix “for a very, very long time” as he attacked the Labor state of South Australia, which generates 40 per cent of its energy through wind, for having the “most expensive and the least reliable electricity” in the country.

“We are the biggest coal exporter in the world. If anybody, if any country has a vested interest in demonstrating that clean coal and cleaner coal with new technologies can make a big contribution to our energy mix and at the same time reduce our emissions in net terms — it’s us,” Mr Turnbull said.

“Our approach, and my approach, to energy is absolutely pragmatic and practical … Renewables have a role. Fossil fuels have a role. Every type of energy — storage, all of it — has an important role to play.”

Mr Turnbull said it was “wrong” to be ideological about the nation’s energy mix after Mr Abbott wrote in The Weekend Australian that the government should urgently scrap the mandatory RET, insisting the focus should be on what is most affordable.

The Minerals Council of Australia said the Department of Industry’s projections showing new coal generation technologies could reduce emissions “sharply” were consistent with emissions savings being achieved around the world.

“With high efficiency low emissions (HELE) coal technologies as clean as gas plants, countries accounting for nearly half of global CO2 emissions are deploying these technologies to meet their emissions targets under the 2015 Paris Agreement,” the council’s chief executive Brendan Pearson said.

“These HELE plants deliver secure, affordable energy while lowering CO2 emissions by as much as 50 per cent compared with existing plants. As the adoption of carbon capture and storage technologies increases, these emissions savings will increase to 90 per cent.”

Resources Minister Matt Canavan said Asian countries were not only reducing carbon emissions by installing supercritical coal-fired power but they were doing so “at a cost cheaper than many other emissions reducing options”.

“When reducing the carbon emissions of our power stations we should seek to do so at the lowest cost,” he told The Australian.

Replacing sub-critical technology with super-critical technology saves CO2 at a cost of between US$15 to US$25 a tonne in Southeast Asia, according to the World Coal Association.
The Australian

While Malcolm Turnbull may truly believe in the benefits of switching to high-efficiency, super-critical coal-fired plant, getting there is, in policy terms, much easier said than done.

In the absence of an emission trading scheme – which would potentially reward the owners of more efficient coal-fired power plants for a relative reduction in CO2 emissions (see our post here) – current energy policy leaves no room for any base-load power plant in a power market grossly distorted by the Large-Scale RET.

Ageing coal-fired plant – like Victoria’s Hazelwood power station (destined to close soon) and South Australia’s Port Augusta, Northern power station (which closed last May) – with high maintenance costs have no hope of remaining profitable, as long as the LRET remains.

Indeed, no base-load plant can operate profitably, as designed. Steam powered turbines (whether their boilers are heated by coal or gas) are designed to run constantly, practically 24 x 365, with scheduled downtime for maintenance and inspection of boilers, pipes etc every few months or so. Once the boiler is heated to critical temperature (generating the level of steam pressure required to run its turbine), the unit is meant to remain at that temperature and pressure throughout its operating cycle; or at least close to it – repeated heating and cooling causes metal fatigue, degrading the integrity of the fire-box and boiler, thereby reducing the life-span of the plant.

With power demand varying on a day-to-day basis, the fuel fed to boilers will likewise vary, but is not cut completely – water is kept close to boiling, even when a plant is not dispatching power: what’s known as ‘thermal reserve’. However, because fuel costs money, the owner of the plant can only cover that cost whenever power is being dispatched to the grid and revenue from power sales returned. Moreover, any hope of making a profit requires the revenue obtained from dispatching power to exceed the cost of doing so.

For students of that dismal science, economics, the power market was often used as a teaching example: the concept of a “natural monopoly” was defined by reference to the generation and delivery of electricity to homes and businesses.

Australia’s Federal Large-Scale RET has turned the economics of Australia’s power market on its head. And it’s the erratic nature of wind power that is principally responsible for the havoc caused. The first image is of the output from AGL’s Torrens Island Gas-Steam plant during July 2016, the second is of the combined output of SA’s 18 wind farms (notional capacity of 1,576MW) during the same period:

In South Australia, when the wind blows, for periods of four or five hours at a stretch, base-load operators get knocked out of the market, as wind power outfits dispatch power to the grid at prices close to or below zero (see above). That is, wind power operators literally offer to give their power away to the grid manager (or even pay to do so) simply because they are guaranteed fixed prices set by Power Purchase Agreements (in South Australia, AGL in its capacity as retailer pays $112 per MWh for wind power, irrespective of the price at which it is dispatched to the grid).

The high, fixed and guaranteed prices under PPAs are only possible because of the value placed on the Renewable Energy Certificate which is collected by wind power outfits for every MWh that they dispatch to the grid. RECs are currently trading at around $89 on the spot market:

The price distortion caused by the LRET was picked up by the Australian Financial Review’s Mark Lawson about how SA’s wind power outfits use the REC subsidy to their advantage and the disadvantage of every other generator:

When the wind is blowing strongly wind farm power will flood the market to pull prices down to minus $20 (generators pay retailers to take the power). This is obviously uneconomic for conventional generators, but wind and solar generators can still make some money under the renewable energy target.

A wind power outfit will still turn a profit even if it collects nothing from the grid manager or it pays the grid manager the $20 per MWh mentioned in the quote from the AFR above. That $20 is simply deducted from the fixed price obtained under the wind power outfit’s PPA with a retailer, giving a net return that leaves the wind power outfit in the black – in AGL’s case: $112 – $20 = $92 per MWh. Our favourite whipping boys, Infigen report wind farm operation and maintenance costs of $25 per MWh, so revenue above that leaves room for a profit margin, based on the value of the REC.

So, for whatever period the wind is blowing, conventional base-load power plant get knocked out of the market, unable to match the prices offered to wind power due to the REC subsidies it attracts. Meanwhile, they will continue to burn fuel, pay wages and all of their other overheads and operating costs without collecting a penny.

All of the above means that, for Malcolm Turnbull’s plan to include super-critical coal-fired power plant in Australia’s energy generation fleet, there has to be a wholesale rewriting of the legislation that sets up the LRET.

STT’s Canberra sources tell us that the most likely move involves forcing wind power generators to operate just like every other generation source on the grid.

The AEMO has already directed South Australia to ensure its last two remaining base-load plants are constantly online. And scheduling wind power generators is the next obvious step.

The solution being formulated in Canberra is to reclassify wind power generators as “scheduled generators”, thereby forcing them to deliver nominated volumes of electricity at nominated times, over nominated periods, predetermined in advance.

Under the AEMO’s current rules wind farms constitute “semi-scheduled generators”:

A generating system with intermittent output (such as a wind or solar farm), and an aggregate nameplate capacity of 30 MW or more is usually classified as a semi-scheduled unless AEMO approves its classification as a scheduled or non-scheduled generating unit. AEMO can limit a semi-scheduled generator’s output in response to network constraints, but at other times the generator can supply up to its maximum registered capacity.

During the chaos that reigned after Black Wednesday, the AEMO prevented a number of SA wind farms from dispatching power to the grid for a week or so.  However, apart from that occasion, wind power outfits are free to deliver everything they generate when the wind is blowing and free to deliver nothing at all when it stops; or blows too hard, and turbines shut down automatically.

Scheduled generators, on the other hand, face serious financial penalties should they ever fail to deliver the volumes promised at the scheduled time and for the scheduled period.

The definition of ‘semi-scheduled’ was cooked up by the wind industry to avoid being penalised for failing to deliver.

Able to flood the market when the wind blows (while still collecting guaranteed prices under their Power Purchase Agreements at rates in the order of $110 per MWh), wind power outfits have, so far, avoided the costs to power consumers caused by their inability to deliver at all.

One way of providing a level playing field for conventional generators under serious consideration is to reclassify wind power generators as “scheduled generators”.  That way, wind power outfits would, like meaningful conventional generators, be required to nominate, in advance, a volume of power to be delivered at set times and for a set duration.

In the event that the wind power outfit did not deliver the volume promised at the designated time or for the designated duration, the wind power outfit would become liable for the cost incurred by the grid manager in obtaining an alternative supply of power.  And, with South Australian spot prices often hitting the regulated market cap of $14,000 per MW/h when the wind stops blowing, the cost that would ultimately be borne by wind power outfits for failing to deliver as scheduled would be colossal.

The flipside of the equation is that wind power outfits would not be entitled to dispatch any power to the grid if they had not been scheduled to do so in advance.  On that basis, wind power outfits would only be able to deliver power on those occasions when demand exceeded scheduled supply and to only deliver volumes of power based on the difference between actual demand and scheduled supply.

By re-designating wind power generators as “scheduled generators”, conventional generators would know, in advance, when to fire up their plant, based on the preordained schedule set by wind power generators themselves.  On that basis, conventional generators would only ever be burning fuel (in reality, at rates sufficient to generate the heat and pressure required to generate steam) when they were in a position to dispatch power to the grid and earn revenue from doing so.

For Malcolm Turnbull’s plan to add super-critical coal-fired plant to Australia’s generating capacity to have any prospect of success, he will need to think and act fast: conventional generators have no hope of surviving under the LRET as it’s currently configured.

In reality, if he wants to see an upgrade in conventional power plant Malcolm needs to follow Tony Abbott’s advice – simply stop the clock on the LRET and put an end to any further expansion of market distorting, grid-wrecking subsidised wind power. Malcolm, your time starts now.