Energy security and options for new generation

Today, the Herald Sun (http://www.heraldsun.com.au/business/terry-mccranns-column/all-power-but-so-lacking-in-energy-generation/story-e6frfig6-1225844031183) published an opinion piece stating that the only real option for generating extra power is to utilise coal-fired generation.

Interestingly, most of the investments in networks and power generation in the short to medium term is likely to be to meet growth in peak demand. Many regions are unlikely to need new baseload generation for many years. If you need further information on this, the Australian Energy Market Operator (AEMO) publishes a ‘state of the market’ called the Statement of Opportunities (SOO) which is available on their website (www.aemo.com.au).

Coal-fired generation is not suited towards meeting peak demand. It has very high capital costs and low operating costs and is suited towards being switched on and left on (i.e. to meet “baseload demand”). When demand reaches its peak due in increasing part to air conditioning uptake by residential households, it is most efficient to use hydro or open cycle gas turbines that can be switched on quickly. In fact, costs of supply are minimised where markets deploy an optimal mix of generation to meet both baseload, intermediate and peaking demand requirements.

The conclusion you can draw from this is that over the coming decade, most investment is likely to occur in renewables and fast-start gas-fired peaking generation. This will be driven by the need to ensure reliability. Coal-fired generation is highly unlikely to be developed due to demand growth being focused around peaks, not baseload. In fact, at AGL we have made a statement that due to market and policy settings, AGL will not underwrite or construct any new conventional coal fired power stations.

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