Coal can’t compete with renewables in long term

Op-Ed, published in The Australian, 22 June 2017.

By Andy Vesey – Managing Director & CEO,  AGL Energy Limited

Once again, we are back in the middle of a national debate on energy policy. There is no dispute that we need an affordable, reliable and sustainable energy system, the sticking point is agreeing on how to get there.

Meanwhile, energy prices continue to rise because the best way to put downward pressure on prices is to increase investment to in turn, increase supply, and the best way to unlock that investment is to create a policy framework which most people agree is the best way to modernise our electricity system.

We have welcomed the Finkel blueprint, but it is bipartisan support of policy that’s needed rather than the perfect policy solution, so industry can just get on with it. We can’t wait for a perfect policy solution because it’s our customers who literally pay the price.

Finkel’s Clean Energy Target provides a realistic framework for investment. Finkel has estimated a $900 billion investment is needed in the energy system over the next few decades. AGL is ready to contribute to that challenge and the investment we will make will be in low-emissions technology because we know the costs of these technologies are coming down, while coal is not.

Around 75% of the nation’s thermal generation assets are now past their use-by date and need to be replaced – whether by coal, which AGL has pledged not to do, and we do not believe doing so would deliver the cheapest generation long term, or by a combination of renewables and lower emissions generation.

When these very large power stations close down without warning, as happened in South Australia and Victoria last year, wholesale prices spike because a large amount of generation is suddenly unavailable. Finkel argues that three year’s notice should be given for any closure to give investors time to respond to the upcoming decline in supply by building new capacity. In 2015, AGL announced when we would close our coal-fired power stations for just that reason.

While our coal-fired power stations are ageing, the cost of household rooftop solar has fallen by around 80% over the past decade and now as many as 25% of homes in some states have solar power installed. This shift shows no signs of abating and demonstrates the changing nature of the energy market from one in which electricity is sold via regulated transmission and distribution networks, to one in which a consumer can also be a generator –  and except in peak periods (thanks to the now ubiquitous air-conditioner) demand for energy has fallen as prices have risen.

Given the technology is changing, investors are increasingly sure that the cheapest source of electricity is likely to come from renewables supported by firming or storage and it is highly unlikely to come from baseload coal or gas – technologies which haven’t changed a great deal in decades.

Current wind and solar technologies do not provide around the clock supply and battery storage technologies, although improving all the time, are immature. That’s why we need to consider firming options like quick start gas peaking plants for times when renewables need to be supplemented, and that’s what we announced in South Australia earlier this month.

As the country’s largest electricity generator, AGL is in a unique position – we are both the largest ASX-listed investor in renewables, but we have the largest carbon footprint, and we cannot afford to approach the climate change debate with an ideological perspective. Our investors, many of whom are ordinary Australians that own AGL through their superannuation, want us to be planning for the future. We know our customers rely on coal-fired generation now, and we understand they want a cleaner source of generation into the future, so while political certainty would be very helpful, we will continue to get on with creating our own certainty to deliver the energy our customers need.

4 Responses

  1. Dave Nickerson

    I have seen this in most developed markets. The falling price of renewables, especially solar has refocussed new generation growth away from coal and in some markets even gas. The problem is that in most markets, large sale capacity is required to offset variations in solar and wind. While batteries are all the rage, they work in predominately smaller markets where solar and wind may be 40 MW to 80 MW. However I do not think that enough attention has been focused on the environmental costs of battery production and recycling. The problem generators face is that the markets want to value capacity the same as renewables. That then creates a no win situation. Generators are left with the responsibility to balance the gird but not the economics with which to do so. We are seeing larger scale medium speed engine plants (land based and barge mounted) popping up in the states as fast start renewable offsets. This is why our focus has shifted from gas turbine power barges to medium speed engine power barges, and why we now couple in our offerings with FSRUs. The advantage with power barges is the high redeployment capability and the high resale value. Currently we are bidding into projects in the US for up to 5 medium speed engine power barges. I hope that the demand side recognizes the value of capacity in the market.

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