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.

8 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.

  2. Tony Rae

    Please make sure if coal is not your base load power into the future that whatever you use,that there is enough of it to get your state through the not summers and cold winters, And plenty of it to keep the prices down for the less fortunate

  3. Peter Davies

    Excellent article giving some hope. A couple of years ago NSW OEH Officer, actually assigned to us at the time as liaison to assist commercialisation, told a group of 16 Councils they should not be considering gasifiers for biomass energy & waste management because modeling showed NSW only needed 200MWe of new renewable generation over the next few years and this was already fully committed in solar & wind projects. Increasing the competition would put these investor funds at risk… Despite this and other obstruction we have continued to move forward and have distributable, dispatch-able power designs from 30kWe to +5MWe and are involved in Projects which have +100MWe commissioning likelihoods before 2020 (with order of magnitude higher potential). Our tech also has unique new capability in regard coal, and can easily and seamlessly swap fuels as needed with response times the same as gas generation for load following/peak lopping application, indeed the only technology able to co-fire and transition from solid fossil fuels to 100% regenerative carbon without creating stranded assets, or the cost of reserving natural gas capacity, nor are they limited to energy as useful outputs. What is missing from this picture is a utility partner with the vision to apply and manage this technology for clients with suitable biomass wastes (600MWe potential in NSW alone). How do we engage with AGL to consider such generation options in their portfolio?

  4. John Watt

    As an Australian electricity bill payer for the past 45 years I would like to know how we allowed ourselves to plunge into our current energy supply mess. 10 or 15 years ago we has some of the cheapest domestic electricity in the world. It was also very reliable. Now we are amongst the world’s highest electricity prices and also have diminished reliability. Who “managed” to create this mess. Politicians balancing budgets with electricity asset sales? Most of us by choosing to “feel good” thinking we were saving the planet as we followed unquestioningly after Flannery/Obama/Gore ? How many of us are aware of the groundbreaking work of a couple of Australian experts in the climate field? Dr John Nicol has shown that CO2 is incapable of causing the devastation that the IPCC models claim. Dr David Evans has pretty much debunked the structure and accuracy of the IPCC models. Are AGL management prepared to take advice on the work of Nicol and Evans before spending anymore of company’s revenue on the misleading AGL advertising bombarding out TV screens. Or will AGL management simply continue to submit to the misleading conclusions drawn from IPCC’s faulty models?

    • Theo Comino

      Thank you John, we appreciate you taking the time to engage on a topic of such importance. This notwithstanding AGL recognises and accepts the scientific consensus on climate change.

      We note the Fifth Assessment report of the Intergovernmental Panel on Climate Change (IPCC-AR5) report findings. Specifically, to stay within concentrations consistent with a 66% chance of 2 degree warming or less a decarbonisation of the electricity generation sector is likely required. The IPCC report provides the cornerstone for the company position on the science of climate change and subsequent impacts on our organisation and the communities within which we operate.


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