Why big projects like the Adani coal mine won’t transform regional Queensland


John Cole, University of Southern Queensland

Queensland election campaigns often focus on big projects for the regions, such as for roads, power plants and mines. But research suggests that mega projects, such as in gas and coal, have not transformed skills or improved employment prospects in regional Queensland.

Take away the temporary booms from construction and other short-term jobs, and employment growth overall is no better than before the global financial crisis. Certainly Queensland’s regions are no more resilient. Instead of these mega projects, what’s needed are new sources of economic value in knowledge, services, and technology.


Read more: Here’s 49 small communities innovating as well as the big cities


Between 2010 and 2013 investment in coal mining surged 400% in the Bowen Basin. Further south, in the Surat Basin and at Gladstone, four international consortia spent more than A$70 billion fast-tracking a coal seam and liquid natural gas industry.

These projects fell far short of generating new skills and enduring businesses in the regions. Continuing dependence on resources and agriculture also creates its own vulnerabilities, as both are challenged by market and investment volatility, and increased climate risk.

Overall the focus on mega projects has weakened social and economic resilience in communities across Queensland. Resilience refers to the capacity of regional communities to handle risks and manage change. Resilient regions deepen and diversify their economies.

Megaproject sugar highs

Annual construction spending in the resources sector peaked at A$36.6 billion in Queensland in 2013-14, and has dropped by 70% since. Unemployment has doubled in Queensland’s northern, central and outback regions.

The impact is seen in Townsville, Rockhampton, and Gladstone, who are now pitching to become bases for “Fly In Fly Out” workers. Rather than drive their own local economic development, these cities are punting on the next big mining project.

Gladstone is already the pin-up of the construction boom-bust development model. The port city boasts a highly trained workforce in alumina and aluminium processing, cement, liquid natural gas and chemical manufacturing. Still, it waits on the next big mining construction boom.


Read more: If Queenslanders vote on economic issues the Labor government is looking good


What regional Queensland really needs is politicians to abandon short-term economic fixes, in favour of a sustainable long term vision. Policies would have greater impact if they focused on skills and enterprise training. Stronger regional collaboration to broker opportunities for smart businesses is essential.

Just north of Brisbane, Moreton Regional Council is showing the way by transforming a former industrial site into a university campus. Tertiary education will come to the fast growing region along with a research and technology park, creating the jobs of the future.

Regional Queensland can also learn from the European Commission’s “smart specialisation” structural assistance programs that help regions build knowledge-based competitive industries through strategic public funding and support for research and development etc.

By 2020, smart specialisation in Europe is expected to deliver 15,000 new products to market, 140,000 new startups and 350,000 new jobs.

Integral to the European strategy is strong collaboration between the research and university sectors, and regional industries. Strong cooperation between levels of government is key to the success. The industries are as varied as cheese manufacturing in Spain, new transport systems in Finland, and materials manufacturing in France.

The Europeans have found that changing business culture and boosting entrepreneurship are just as important to creating opportunity as large infrastructure projects.

What Queensland should do

Queensland should rethink its big projects for a big country approach. Regional jobs that depend on project investment without generating local income are not sustainable. Small business and community must be restored to centre stage in development strategy.

Small and medium businesses collectively account for more than 99% of all business in Queensland, and three times as many people work in the state’s A$20 billion manufacturing sector (169,000) as work directly in the resources sector (48,000).

But small and medium businesses lack the profile of the “big end of town”, and the large resources companies have been effective at selling the narrative that they are central to the A$300 billion Queensland economy.


Read more: Bust the regional city myths and look beyond the ‘big 5’ for a $378b return


The priority for developing Queensland’s regions should be investment that generates small business growth, local income, new skills and communities. Particular emphasis has to be given to attracting and retaining talented people.

The state government can best help regional Queensland by heeding the Productivity Commission’s call to help regional Australia adapt and exploit the opportunities of ever present change. This requires greater local initiative, making the most of competitive strengths, and training people to better engage with the world.

The global services sector is a $US47 trillion industry. For regional Queensland to tap into this sector will require skills in fields as diverse as big data, biotechnology, genetics, robotics, communications, and digital manufacturing.

A good start has been made in the Advance Queensland Regional Innovation Programs which have challenged regions to think outside the box, collaborate, and come up with their own strategies. It complements the federal government’s Building Better Regions Fund.

The ConversationThis approach challenges the current politically dominated top down model of regional development. It’s a vision for regional Queensland that extends beyond resources, agriculture, tourism and construction to the people themselves.

John Cole, Executive Director, Institute for Resilient Regions, University of Southern Queensland

This article was originally published on The Conversation. Read the original article.

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Why Adani may still get its government loan


Brendan Gogarty, University of Tasmania

Even though Queensland Premier Annastacia Palaszczuk announced she would be vetoing the around A$1 billion loan to Adani for a rail link to its proposed Carmichael coal mine, funds could still flow to the company.

Currently in caretaker mode for the Queensland election, the premier would need the consent of the opposition party to exercise such a right. That is very unlikely given the LNP’s longstanding support of Adani’s mine.

This means any veto could not be exercised until late November, or more realistically, December 2017.

As the Northern Australia Infrastructure Facility (NAIF) loan doesn’t need state approval (but rather explicit veto) it could also mean the money will make its way to Adani, without any direct action by the state government.

How would Commonwealth money make its way to Adani?

The NAIF body was established in 2016 and administers A$5 billion in Commonwealth funds. It’s been empowered to award grants to the northern states and Northern Territory for infrastructure projects. Practically, however, these jurisdictions are used as financial conduits to pass this money to large corporations operating in northern Australia.

The NAIF is established under the “tied-grants” provision of the Constitution, Section 96, which states:

…the [Commonwealth] parliament may grant financial assistance to any state on such terms and conditions as the [Commonwealth] parliament thinks fit.

This section was intended to provide for a short-term (around ten years) mechanism for central funds to be granted to the new states affected by the restructuring of national public finances, after federation. However, the Commonwealth parliament continued to use this section well into the 20th century (and increasingly today) to grant funds to cash-strapped states.

Over time, the Commonwealth started to impose terms that required the states do things that were outside of the Commonwealth’s legislative power – such as education or, indeed, infrastructure development.

The early-20th-century High Court concluded that this was acceptable, as long as the state technically consented to the terms and conditions of the grant.

While the NAIF legislation does not require such consent, under rules issued by the Commonwealth minister the NAIF has to:

… commence consultation with the relevant jurisdiction as soon as practicable after receiving an investment proposal

In Adani’s case, the Investment Rules indicate that the “jurisdiction” is the “state or territory the infrastructure project is located”, namely Queensland. The state government after reviewing project and investment may provide:

… written notification that financial assistance should not be provided to a project.

If that is the case then the NAIF is not permitted to provide the grant money to the applicant (Adani). But that doesn’t mean the state hasn’t consented to the loan.

The problem is that the High Court has never really addressed what the word “state” means in Section 96. Specifically who should the money be paid to: the “parliament of the state”; “government of the state” or, as seems to be implied in the Palaszczuk statements the “premier of the state”?

Conventionally, when we talk of “state consent” to funds, we envision a complex process by which money is paid into a central state fund under the control of state parliament. However, the NAIF legislation appears to allow for merely the state government to consent in a very minimal way, simply by passing the money directly to Adani without the state parliament ever reviewing or approving the transaction.

The NAIF legislation also doesn’t specify who in the government might consent. To date, it is the treasurer who seems to have been most actively involved in working with the NAIF, and indeed Adani. It seems that, so long as the state has been “consulted”, unless it takes active steps to stop the loan, it will go ahead.

Does Palaszczuk have a ‘veto’ power?

The premier’s reasoning for the veto is a continuation of her government’s legacy of having “no role to date in the federal government’s NAIF Loan Assessment Process for Adani” and no “role in the future”.

These statements seem to be contrary to earlier ones by the Queensland treasurer, Curtis Pitt, that the government would “do what is required” to facilitate Commonwealth funds going to Adani. In fact, as early as November 2016, Pitt declared in state parliament:

Since we came to office, we have been working very closely with the Commonwealth government to facilitate … the NAIF – in North Queensland… It is through the NAIF facility, which the state wholeheartedly supports, that Adani can get the infrastructure support that it needs.

As a result, it would seem that everything needed to pass the NAIF funds to Adani is provided for. The only thing to actively stop it is a formal, written statement by Palaszczuk to the NAIF refusing the loan (not to the prime minister as she claimed). Given Palaszczuk’s statement that she intends to write this statement, it is clear that no formal notice has yet been issued to the NAIF.

However, it would seem that a “Master Facility Agreement” between Queensland and the NAIF has already been agreed to and set up. This agreement seems to envision the treasurer of Queensland passing the money to Adani, without it ever going into the state’s bank accounts. Hence, in May this year, the Queensland treasurer confirmed that:

Our role, for constitutional reasons, is the legal financing contract, the loan agreement including the drawdown and timing, repayment of interest — all of those things have to have state involvement constitutionally.

So, unless the Queensland opposition takes the very unlikely step of agreeing to a veto, Palaszczuk would appear to lack the power to issue one herself until after the election.

The ConversationIn the interim, NAIF has no legal restrictions on issuing the loan and, with the apparent agreement of the Queensland treasury, this money is likely to flow through to Adani. While Palaszczuk can say her government gave no active assistance to Adani, without active measures to block the loan, it would certainly be a silent partner in the process.

Brendan Gogarty, Senior Lecturer in Law, University of Tasmania

This article was originally published on The Conversation. Read the original article.

The government’s energy policy hinges on some tricky wordplay about coal’s role


John Quiggin, The University of Queensland

The most important thing to understand about the federal government’s new National Energy Guarantee is that it is designed not to produce a sustainable and reliable electricity supply system for the future, but to meet purely political objectives for the current term of parliament.

Those political objectives are: to provide a point of policy difference with the Labor Party; to meet the demands of the government’s backbench to provide support for coal-fired electricity; and to be seen to be acting to hold power prices down.

Meeting these objectives solves Prime Minister Malcolm Turnbull’s immediate political problems. But it comes at the cost of producing a policy that can only produce further confusion and delay.


Read more: Federal government unveils ‘National Energy Guarantee’ – experts react


The government’s central problem is that, as well as being polluting, coal-fired power is not well suited to the problem of increasingly high peaks in power demand, combined with slow growth in total demand.

Coal-fired power plants are expensive to start up and shut down, and are therefore best suited to meeting “baseload demand” – that is, the base level of electricity demand that never goes away. Until recently, this characteristic of coal was pushed by the government as the main reason we needed to maintain coal-fired power.

The opposite of baseload power is “dispatchable” power, which can be turned on and off as needed.

Classic sources of dispatchable power include hydroelectricity and gas, while recent technological advances mean that large-scale battery storage is now also a feasible option.

Coal-fired plants can be adapted to be “load-following” which gives them some flexibility in their output. But this requires expensive investment and reduces the plants’ operating life. The process is particularly ill-suited to the so-called High Efficiency, Low Emissions (HELE) plants being pushed as a solution to the other half of the policy problem, reducing carbon dioxide emissions.

Given that there is only limited capacity to expand hydro (Turnbull’s Snowy 2.0 is years away, if it ever happens) and that successive governments have made a mess of gas policy, any serious expansion of dispatchable power would realistically need to focus on batteries. The South Australian government reached this conclusion some time ago, making a decision to invest in its own battery storage. That move was roundly condemned by the federal government, which at the time was still focused on baseload.

The government’s emphasis on baseload was always mistaken, but the confusion and noise surrounding energy policy meant that few people understood this. That changed in September when the Australian Energy Market Operator (AEMO) reported that Australia’s National Electricity Market faced a capacity shortfall of up to 1,000 megawatts for the coming summer, and that older baseload power stations will struggle to cope.

Clearly this situation called for more flexibility in dispatchable sources in the short term, and widespread investment in dispatchables for the long term.

A question of definition

Obviously, this presented Turnbull with a dilemma. The policy advice clearly favoured dispatchables, but vocal members of his backbench wanted a policy to subsidise coal.

The answer was breathtakingly simple. The new policy redefines coal as dispatchable, despite it having the opposite technological characteristics.

This is not an entirely new approach. Before the government decided to abandon the proposed Clean Energy Target it put a lot of effort into redefining coal as “clean”. The approach here involved creating confusion between carbon capture and storage (CCS) and HELE power stations. CCS involves capturing carbon dioxide from power station smokestacks and pumping it underground, thereby avoiding emissions. This would be a great solution to the problems of carbon pollution if it worked, but unfortunately it’s hopelessly uneconomic

By contrast, HELE is just a fancy name for the marginal improvements made to coal-fired technology over the 30-50 years since most of our existing coal-fired plants were designed and built. The “low” emissions are far higher than those for gas-fired power, let alone renewables or, for that matter, nuclear energy (another uneconomic option).

The core of the government’s plan is a requirement that all electricity retailers should provide a certain proportion of dispatchable electricity – a term that has now been arbitrarily defined to include coal. By creating a demand for this supposedly dispatchable power, the policy discourages the retirement of the very coal units that AEMO has identified as ill-suited to our needs.

Elusive certainty?

Given that the policy is unlikely to survive beyond the next election, it’s unlikely that it will prompt anyone to build a new gas-fired power station, let alone a coal-fired plant. So the only real effect will be to discourage investment in renewables and create yet further policy uncertainty.

This undermines the basis for the (unreleased) modelling supposedly showing that household electricity costs will fall. These savings are supposed to arise from the investment certainty resulting from bipartisan agreement. But the political imperative for the government is to put forward a policy Labor can’t support, to provide leverage in an election campaign. If the government had wanted policy certainty it could have accepted Labor’s offer to support the Clean Energy Target.

The ConversationIt remains to be seen whether this scheme will achieve the government’s political objectives. It is already evident, however, that it does not represent a long-term solution to our problems in energy and climate policy.

John Quiggin, Professor, School of Economics, The University of Queensland

This article was originally published on The Conversation. Read the original article.

Grattan on Friday: King Coal is wearing big boots in the Turnbull government



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Labor mentioned Scott Morrison’s ‘pet rock’ during Question Time on Tuesday.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

It took quite a while, but the Turnbull government this week finally “landed” its package for the biggest shake-up of media rules in decades.

The Senate deal was done thanks to a sprinkling of sugar for crossbenchers. Handouts for Nick Xenophon to help regional and small publishers, so he could say he was promoting “diversity”. Promises to Pauline Hanson to put some burdens on the ABC, so One Nation could brag it was chasing “the elephant in the room”.

The concessions don’t mean as much as the crossbenchers will claim, while the rule changes potentially mean a great deal. It might have seemed a tortuous process, but from the government’s point of view it has been a significant win at little cost.

If only the nation’s long-term energy policy could be “landed” as readily.

With the media changes, the industry stakeholders were united, in contrast to the vastly more complicated area of energy, as it transitions from fossil fuels to renewables, via a mixed system.

In another major difference with media policy, the most difficult negotiations on energy, at least imminently, are not with crossbenchers but within the government’s own ranks.

Just as it did in the dying days of his leadership in 2009, the coal cloud hangs darkly over Malcolm Turnbull. And once again, the Nationals are big players in the debate – and so is Tony Abbott.

But Turnbull’s own positions then and now are poles apart. In 2009, he famously championed the move to renewables, via a carbon price, which triggered his downfall. This time, bowing to the power of coal, he has increasingly become its vociferous public advocate.

When the government released the Finkel report on energy security in June, Turnbull made it clear he saw its centrepiece, a clean energy target (CET), as a torch to light the path to the future.

Chief Scientist Alan Finkel’s CET, with its particular focus on reducing emissions, was never going to be implemented in a pure form. Coal was always set for a larger role than Finkel would want, as Turnbull quickly made clear.

The CET debate should be seen as choosing a place on a spectrum rather than accepting or rejecting a single point. But at the start, even Nationals leader Barnaby Joyce was (sort of) on board for a CET, provided it allowed coal in.

Progressively, however, the Finkel blueprint has been pushed further and further on to the defensive.

The sharpest setback for it came last week, with the release of the report from the Australian Energy Market Operator (AEMO) warning of electricity shortages in coming years. The government had commissioned the report when it became panicky about so-called “dispatchable” power – power available whenever needed to meet demand – as the consequences of the closure of Hazelwood in Victoria sank in.

Energy Minister Josh Frydenberg said the AEMO report “reset the debate”. Joyce invoked John Maynard Keynes’ observation about changing his mind when he got new information – the report contained “new information”, Joyce said.

In fact the “resetting” had been creeping up well before the AEMO report. Abbott, especially, had been hard at work prosecuting the case against renewables.

Abbott – who was deposed two years ago this week – currently has two campaigns running: against the CET, and in opposition to same-sex marriage. He is highly energised and said to be enjoying himself.

On Thursday he was unequivocal. “We need to get right away from talking about renewable energy targets and clean energy targets and start talking about a 100% reliable energy target, ‘cause nothing else will do,” he said on 2GB.

“I welcome these signs that we are moving away from a clean energy target to a reliable energy target,” he said. Renewables always had to have a back-up “and if there’s got to be back-up you’ve got to ask the question, what useful purpose do they serve?

“Now there may well be some circumstances in which renewables in conjunction with back-up measures are economic, and if they’re economic and dependable, fair enough, but at the moment, they’re neither.”

The Nationals’ Matt Canavan, former resources minister who is on the backbench awaiting the citizenship case, has been a very loud voice for coal. The Nationals had the megaphone out at their weekend federal conference, calling for subsidies for renewables to be phased out.

As coal has muscled its way to the centre of the stage, we’ve seen the showdown between the government and AGL over the future of its Liddell coal-fired power station. This battle has a way to go.

At a trivial but symbolic level, there’s been the suggestion that whatever policy the government finally produces will avoid the sensitive “clean energy target” label. Maybe the focus groups are already at work on that one.

Despite the apparent mess, the government believes it can turn the energy debate to its political advantage. This is certainly the view among Nationals.

The strategy involves being seen to do a lot of things – Turnbull rehearses the check list of interventions on gas, power bills and the like – and demonising Labor’s attachment to renewables, with derision against “Blackout Bill”, “Brownout Butler” and “No Coal Joel [Fitzgibbon]”.

The government accuses Labor of selling out working-class people in favour of leftist, inner-city followers concerned about climate change. Turnbull is now emphasising the cost and reliability of power, with emissions reduction referred to sotto voce.

The Nationals are convinced their priority for coal will work well for them in the regions. They say it fits with the two issues that come at the top in their polling – jobs and cost of living.

When Abbott was fighting the Labor government, the carbon tax’s impact on the cost of living was an obvious plus for him. The question is whether power prices and cost of living can play for the Coalition when it is in office. The government and some observers suggest it will.

It does seem counterintuitive. Unless the voters are very gullible, you’d think they’d judge on results not rhetoric – that is, what their power bills are looking like when they get to the ballot box.

On the other hand, the government argues that if it can assert Labor’s policies would bring even higher bills, it can gain a tactical advantage.

Regardless of what the public are thinking, it’s clear that business – the constituency critical for future investment – remains deeply unimpressed with the politicking.

The ConversationUnless and until the government gets to grips with the substance of what needs to be done, the lack of a coherent energy policy will remain an indictment of the politicians and a burden on Australian families and enterprises.

https://www.podbean.com/media/player/fr3g9-72ed6d?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Coal and the Coalition: the policy knot that still won’t untie


Marc Hudson, University of Manchester

As the Turnbull government ties itself in yet more knots over the future of coal-fired power, it’s worth reflecting that climate and energy policy have been a bloody business for almost a decade now.

There was a brief period of consensus ushered in by John Howard’s belated realisation in 2006 that a price had to be put on carbon dioxide emissions. But by December 2009 the Nationals, and enough Liberals, had decided that this was a mistake, and have opposed explicit carbon pricing ever since.


Read more: Ten years of backflips over emissions trading leave climate policy in the lurch.


The resulting policy uncertainty has caused an investment drought which has contributed to higher energy prices. Now, with prices a hot potato, there are thought bubbles about extending the life of coal-fired power stations and a new effort to set up a Conservatives for Conservation group.

But the Liberal Party’s tussles over climate and energy policy (as distinct from denying the science itself) go back even further – some 30 years.

Early days and ‘early’ action

It’s hard to believe it now, but the Liberal Party took a stronger emissions target than Labor to the 1990 Federal election. Yet green-minded voters were not persuaded, and Labor squeaked home with their support. After that episode the Liberals largely gave on courting green voters, and under new leader John Hewson the party tacked right. Ironically, considering Hewson’s climate advocacy today, back then his Fightback! policy was as silent on climate change as it was on the price of birthday cakes.

In his excellent 2007 book High and Dry, former Liberal speech writer Guy Pearse recounts how in the mid-1990s he contacted the Australian Conservation Foundation, offering to to canvass Coalition MPs to “find the most promising areas of common ground” on which to work when the party returned to government. The ACF was “enthusiastic, if a little bemused at the novelty of a Liberal wanting to work with them”. Most Liberal MPs – including future environment minister Robert Hill and future prime minister Tony Abbott – were “strongly supportive” of the idea. But others (Pearse names Eric Abetz and Peter McGauran) were “paranoid that some kind of trap was being laid”. Nothing came of it.

Elected in 1996, Howard continued the staunch hostility to the United Nations climate negotiations that his Labor predecessor Paul Keating had begun. Not all businessmen were happy. Leading up to the crucial Kyoto summit in 1997, the Sydney Morning Herald reported how a “delegation of scientists and financiers” led by Howard’s local party branch manager Robert Vincin and Liberal Party grandee Sir John Carrick lobbied the prime minister to take a more progressive approach. Howard did not bend.

Howard stayed unmoved until 2006 when, facing a perfect storm of rising public climate awareness and spiralling poll numbers, he finally relented. Earlier that year a group of businesses convened by the Australian Conservation Foundation produced a report titled The Early Case for Business Action. “Early” is debatable, given that climate change had already been a political issue since 1988, but more saliently the report tentatively suggested introducing a carbon price. And Howard finally relented.

The carbon wars

The ensuing ten years after Kevin Rudd’s defeat of Howard don’t need much recapping here (go here for all the details). But one interesting phenomenon that has emerged from the policy wreckage is the emergence of some very unusual coalitions to beg for certainty.

In 2015, in the leadup to the crucial Paris climate talks, an “unprecedented alliance” of business, union, environmental, investor and welfare groups called the Australian Climate Roundtable sprang briefly into life to make the case for action.

Then, after the seminal South Australia blackout last September, a surprisingly diverse group of industry and consumer bodies – the Australian Energy Council, Australian Industry Group, Business Council of Australia, Clean Energy Council, Energy Users Association, Energy Consumers Australia, Energy Networks Association and Energy Efficiency Council – called on federal and state energy ministers to “work together to craft a cooperative and strategic response to the transformation underway in Australia’s energy system”.


Read more: Who tilts at windmills? Explaining hostility to renewables.


It’s in this light that the new Conseratives for Conservation lobbying effort should be seen. Its spearhead Kristina Photios surely knows she has no chance of converting the committed denialists, but she can chip away at the waverers currently giving them comfort and power.

Questions on notice

Of course, there are always cultural (or even psychological) issues, but you’d think that conservation would be a no-brainer for conservatives (the clue should be in the name).

There are a few questions, of course (with my answers in brackets).

  • Where were all the people who are now calling for policy certainty back in 2011 when Tony Abbott was declaring his oath to kill off the carbon tax? (They were AWOL.)

  • Will any business show any interest in building a new coal-fired power station? (No.)

  • Is renewable energy technology now advanced enough for them to make serious money? (We shall see.)

  • Can we make up for lost time in our emissions reductions? (No, and we have already ensured more climate misery than there would have been with genuinely early climate action.)

  • Will the Liberals further water down the Clean Energy Target proposal? (Probably.)

  • What will Tony Abbott say to UK climate sceptic think tank the Global Warming Policy Foundation when he gives a speech on October 6? (Who knows –
    grab your popcorn!).

  • What will happen to the Liberals in the medium term? (Who knows, but Michelle Grattan of this parish has some intriguing ideas.)

  • Are there reasons to be cheerful? (Renewable energy journalist Ketan Joshi thinks so.)

Perhaps the last word on this issue should go to John Hewson, who noted last year:

The ConversationThe “right” love to speak of the debt and deficit problem as a form of “intergenerational theft”, yet they fail to see the climate challenge in the same terms, even though the consequences of failing to address it substantively, and as a matter of urgency, would dwarf that of the debt problem. The “right” is simply “wrong”. It’s political opportunism of the worst sort, and their children and grandchildren will pay the price.

Marc Hudson, PhD Candidate, Sustainable Consumption Institute, University of Manchester

This article was originally published on The Conversation. Read the original article.

FactCheck Q&A: is coal still cheaper than renewables as an energy source?


Ken Baldwin, Australian National University

The Conversation fact-checks claims made on Q&A, broadcast Mondays on the ABC at 9.35pm. Thank you to everyone who sent us quotes for checking via Twitter using hashtags #FactCheck and #QandA, on Facebook or by email.


Excerpt from Q&A, July 17, 2017.

Q&A AUDIENCE MEMBER: Hi. Renewable energy is more carbon-efficient, and now cheaper, than coal and other fossil fuels …

MATT CANAVAN: Thanks, James. Look, I don’t accept that renewables are, at the moment, cheaper than coal.

– Excerpt from a question posed by Q&A audience member James Newbold to then-Resources Minister Senator Matt Canavan on Q&A, July 17, 2017.

One of the biggest debates underway in Australia (and around the world) is about electricity, and how it should be generated. One of the major pressure points is prices.

During an episode of Q&A, audience member James Newbold said renewable energy is “now cheaper than coal and other fossil fuels”. Senator Matt Canavan (then-Resources Minister) disagreed, saying: “I don’t accept that renewables are, at the moment, cheaper than coal.”

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Let’s look at the numbers.

Checking the sources

The Conversation contacted Matt Canavan’s spokesperson for sources to support his statement but did not hear back before deadline. Nonetheless, we can test his statement against publicly available data.

What do the data show?

Based on the electricity generated now by old coal-fired power stations with sunk costs (meaning money that has already been spent and cannot be recovered), Matt Canavan was right to say: “I don’t accept that renewables are, at the moment, cheaper than coal.”

In 2017, the marginal cost of generating power from an already existing coal station is less than $40/MWh, while wind power is $60-70/MWh (explained below). So why do people say renewables are now cheaper than coal?

Well, they’re often talking about what would be the cheaper option if old coal-fired power stations were replaced today – in other words, the new-build price.

Making the distinction between the cost of existing energy generation, and the cost of new-build energy generation in this debate is very important. Comparing the two is like comparing apples and oranges.

Current prices are based on existing installations, while new-build prices compare the costs of different technologies if their operating lives started today. This matters because Australia’s existing coal-fired power stations are ageing and will need to be replaced.

Comparing new-build prices is more complicated than comparing current costs, as I’ll discuss later in this FactCheck.

How do we measure the cost of electrical power?

Let’s cover the basic terminology first.

Electrical energy is measured in kilowatt-hours – the units generally used for metering and charging residential electricity use. One kilowatt-hour represents the amount of energy a device that draws one kilowatt of power (like a household heater, for example) would use in one hour.

A megawatt-hour is 1,000 times larger, and it’s what we typically use to measure large electricity loads or generators. So when we’re comparing the cost of electrical energy generated by different sources, we’ll be talking about Australian dollars per megawatt-hour ($/MWh).

Comparing prices for different sources of electricity

There are a few things we need to take into account when we’re calculating the cost of electricity created by different technologies.

First, we need to factor in how much it costs to establish the source in the first place – whether that’s a coal-fired power station, a wind farm or a hydro-power plant. Then we need to factor in how much it costs to operate, fuel and maintain that facility over its lifetime.

These factors and the cost of capital (like the interest rate) are commonly combined into a metric called the “levelised cost of electricity” (or the LCOE). This provides a measure of the total cost in current dollars per unit of electrical energy generated ($/MWh) over the lifetime of the facility.

We also need to know the time frame in question. A coal-fired power station that’s nearing the end of its operating life may have recovered its original capital investment. So the marginal cost of coal-fired electricity may be low, compared to the levelised cost of a new wind farm that’s yet to recoup its initial capital cost.

Using the levelised costs of electricity created by different technologies does always not provide a perfect comparison. Comparing such different technologies will never be comparing apples with apples. But it’s the best measure we’ve got for a simple “plug-and-play” replacement of a single generating source.

Current prices for coal-fired and wind power

Today, most of Australia’s electricity is sourced from coal-fired power stations. In their discussion on Q&A, Newbold and Canavan referred broadly to “renewables”. Currently, wind power is the cheapest form of renewable energy. So we’ll use that as the basis for comparison with coal-fired energy.

In 2017, the marginal cost of generating power from an already existing black coal-fired station is less than $40/MWh. Brown coal-fired power is even cheaper.

To establish the current price of wind power, we can look at the announcement in May 2017 by Origin Energy, when the company agreed to buy all the power to be generated by the Stockyard Hill Wind Farm in Victoria between 2019 and 2030 for less than $60/MWh.

A similar price was struck in March 2016 when the Australian Capital Territory government conducted its second “wind auction”. The government uses wind auctions to buy contracts for future energy supplies. The lowest price in the 2016 auction yielded around $60/MWh in current prices. This figure is based on a flat rate of $77/MWh for 20 years and assuming around 3% inflation, which is the upper end of Australia’s inflation rate target of 2-3%.

Combining the total price range for that auction with this inflation range gives around $60-$70/MWh in current prices, with wind farms currently operating in that adjusted range.

So, based on the marginal cost of energy generated by existing coal-fired power stations with sunk costs, Canavan is correct in saying that renewables are not “at the moment, cheaper than coal”.

However, the story is different if we are talking about new-build electricity prices. And this is often where conversations and debates become confused.

Why new-build electricity prices matter

Coal-fired power stations in Australia have operating lives of around 50 years. As can be seen from the table below, nine of Australia’s 12 biggest operating coal-fired power stations are more than 30 years old.

In preparation for the retirement of those older coal-fired stations, policymakers, energy companies and other investors are debating whether to replace them with new coal-fired power stations, or other types of energy generation. This is where the comparison of new-build costs comes into play.

https://datawrapper.dwcdn.net/ayv8w/3/

New-build prices for coal-fired and wind power

FactChecks rely on data from events that have already occurred. So we can’t say with factual certainty whether or not renewables would be cheaper than coal as a new-build energy source, because no coal-fired power stations have been built recently.

But we do have recent prices for the cheapest form of new-build renewable energy, which is newly-installed wind power.

And we do have recent levelised price projections for the cheapest new-build fossil fuel energy, which is supercritical coal power.

The projected price for new supercritical coal power comes in at around $75/MWh from the recent Finkel review of the National Electricity Market, based on data produced by Jacobs Consultancy. That is consistent with the price of $80/MWh from the 2016 report from the CO2 Cooperative Research Centre, and less than the $84-94/MWh from the 2012/3 Australian Energy Technology Assessment .

These projections for new supercritical coal power are higher than the recent prices for newly-installed wind power (outlined earlier in the FactCheck) at around $60-70/MWh in current prices over the 20-year contract period (which is similar to a levelised cost).

So, if we look at recent wind power prices and recent price projections for new supercritical coal power, it’s reasonable to say that – as things stand today – wind power would be the cheaper new-build source of electricity.

Future prices

There are important additional factors that need to be taken into account when considering the costs of new-build coal-fired electricity and new-build renewable electricity as we look further into the future. Three of the main considerations are:

  • upgrades to the energy grid (including energy storage) to balance the use of intermittent renewables, especially once renewable energy exceeds around 50% of all energy supply (this would increase the price of renewables)
  • the introduction of a price on carbon emissions (this would increase the price of coal), and
  • improvements in technology (this is expected to reduce the price of renewables more so than coal).

It is possible to make educated assumptions about how these factors would affect prices in the future. But I won’t include those projections in this FactCheck, for two reasons:

  • firstly, we are yet to see the outcomes, and
  • secondly, the Q&A audience member and Canavan were discussing prices as they are “now” and “at the moment”.

So that’s what I’ve addressed in this FactCheck.

Verdict

Based on the electricity generated now by old coal-fired power stations with sunk costs, Matt Canavan was right to say: “I don’t accept that renewables are, at the moment, cheaper than coal”. In 2017, the marginal cost of generating power from an already existing coal station is less than $40/MWh, while wind power is $60-70/MWh.

The Q&A audience member may have been talking about new-build prices.

Based on recent prices for newly-installed wind power of around $60-70/MWh, and recent price projections for new supercritical coal power at around $75/MWh, it is reasonable to say that – as things stand today – wind power would be cheaper than coal as a new-build source of electricity. – Ken Baldwin

Review

The author has provided a sound FactCheck that covers a lot of the complexities around a challenging issue. I would add one remark which doesn’t detract from the author’s verdict.

The cost of new-build coal is likely to be higher than reported in the FactCheck.

The author was correct to point out that the introduction of a price on carbon emissions would increase the cost of new-build coal-fired electricity.

The mere possibility of the introduction of a price on carbon or carbon regulation in the future actually affects the costs of new-build coal-fired electricity today. The risk of increased costs or regulation for emission intensive generators manifests itself as a higher “risk premium” applied to current financing costs. The overall effect is a higher weighted average cost of capital (basically, a higher average interest rate) for emission intensive generation.

In the Finkel review, the weighted average cost of capital for coal is projected to be 14.9%, compared to 7.1% for renewables. Risk adjusted financing costs would result in the levelised cost of new coal being higher than the figures presented in the FactCheck. – Dylan McConnell

Review

The cost of electricity produced from a new wind farm is competitive with the best estimates for the cost of electricity produced from a new coal station, and cheaper than the cost of new coal quoted in very reputable analyses (CO2CRC 2015 and CSIRO 2017).

As noted by the author, the comparison in this FactCheck does not include the cost of intermittency for renewables. Recognising that no technology runs 100% of the time, there is a backup cost to be added to wind to make it as firm (or stable) as a fuel-based plant. Available costs for such backup, such as large scale battery or pumped storage, are based on estimates and are the subject of much current study.

New wind with backup could very well be very competitive with new coal, particularly if the cost of emissions is recognised. However, at present, the contention either way is unproven. – Tony Wood


The Conversation FactCheck is accredited by the International Fact-Checking Network.

The Conversation’s FactCheck unit is the first fact-checking team in Australia and one of the first worldwide to be accredited by the International Fact-Checking Network, an alliance of fact-checkers hosted at the Poynter Institute in the US. Read more here.

The ConversationHave you seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

Ken Baldwin, Director, Energy Change Institute, Australian National University

This article was originally published on The Conversation. Read the original article.

RISING TIDE PROTEST IN NEWCASTLE: COAL INDUSTRY THE TARGET


Climate change activists under the ‘Rising Tide’ banner conducted what was called on the day the ‘People’s Protest’ in Newcastle yesterday. The protest was an attempt to shut down the Port of Newcastle in Australia, which is the largest exporter of coal in the world.

Despite the protesters claim that they had successfully blockaded the harbour, the authorities had previously arranged for there to be no shipping movements on the day in the interests of safety. The protesters used kayaks and various home-made ‘boats’ to form the blockade near Horseshoe Beach. About 500 people took part in the protest.

A police presence was very active during the protest to ensure safety and to prevent any form of crime.

Rising Tide is preaching a message of anti-coal and pro-renewable energy for our future.

NSW Greens MP Lee Rhiannon took part in the protest.

The protesters block the harbour entrance

The protesters block the harbour entrance

 

The police maintained an active presence

The police maintained an active presence

The police maintained an active presence

The police maintained an active presence