Buying out brown coal

Today’s Fin (paywalled) leads with a story that the foreign owners of brown coal power plants are demanding that, instead of receiving compensation over time for the effects of the ETS, they should be paid a lump sum, in the billions of dollars, to shut down the plants. Given that compensation is to be paid, it is impossible for me to disagree with this. The whole point of the ETS is to reduce pollution, and that can’t be done effectively if major polluters receive payments that are conditional on continuing polluting activities.

But should they receive compensation. These plants were all in public ownership in 1992, when the Australian government first committed to reducing CO2 emissions (subject to the findings of the then-new IPCC). When Jeff Kennett sold them, the original buyers ought to have known they were taking a commercial risk regarding possible limits on emissions. Most of the current owners bought even later, after Australia had participated in the negotiation of the Kyoto Protocol.

The people who should be getting compensation are not investors who made bad bets, but the workers and communities who pay the price for their bad decisions. More on this in this paper with Flavio Menezes and Liam Wagner.

95 thoughts on “Buying out brown coal

  1. I rather light candles in the dark than fire up nuclear and create a bigger pollution problem than many in here cant even dream might occur. They cant see the future, they dont want to see the future, and they can neither prevent or fully cost the risks. Its like the financial markets.

    I dont get the enthusiasm of Fran. Nuclear screams warning warning at me. Its not the material. Its clumsy people and its the passage of time. Bechtel are still attempting to ship nuclear waste around the world now through port after port who rejects it, and trying to dump the toxic stuff in poor countries. Ive put all this in before. The list of environmental disasters caused by the ugly stuff is as long as your arm plus every evil criminal and money launderer will want a piece of weapons action profiteering.

    We are not thinking straight if nuclear is even on the cost table.

  2. @Alice

    You know, Alice, if we had IFR we could get Bechtel to pay us to take their hazmat and use it for fuel, in the process reducing its volume and halflife …

    What’s not to like about that?

    You speak of “a bigger pollution problem” with nuclear but nothing is remotely as close as the pollution problem from coal in terms of volume and with coal, it is everywhere and it includes actinides you wouldn’t like in a nuclear plant. You talk of “clumsy” people but every year clumsy people cause deaths in coal mines while non-clumsy people get black lung disease.

    You know full well that the world is not going to abandon coal plants in favour of wind or solar or wave and won’t go close to the timeline needed to the coming demand from 9 billion people and that the gas won’t cover all this and that the gas too, is limited and a fossil fuel, but still you say that nuclear is inconceivable. You must know that the demand for new energy in the dfeveloping world will continue. You must know that the bulk of the world does not share Aussie prejudices about nuclear andf thta the waste will accumulate, and yet, IFR is out.

    It’s this paradox that I find insoluble.

  3. From comments above any assumption that proposing nuclear is electoral suicide looks increasingly shaky. Can The Greens shift on nuclear? It looks extremely unlikely but their membership probably includes people who are rethinking blanket opposition to nuclear for the same reasons as commenters here. It’s probably not as much of a shift in position as the Coalition is facing. I suppose the question is whether Labor can make that change and bypass the Greens and Coalition completely. Unfortunately, with CCS some day and keep the coal fires burning till then policies their credibility isn’t that much better than the Coalition’s. So far the Greens look to have more than either but as these issues become increasingly mainstream ones the Greens will lose influence over the agenda.
    This issue can’t be fixed from the fringes; it will need the middle to take this up and to act.
    Oh, and I had wondered at where private owners of power stations stand – the subject of the post. I don’t expect power companies to bear all the burden of the transition to low emissions but I think any compensation has to bear in mind that they knew then and now know even more clearly that their industry entails an enormous burden of future costs. They can’t claim ignorance. Nor can the governments that sold them those plants.

  4. @Fran Barlow
    The paradox is there Fran because you are replacing one environmental disaster with another. Im not convinced there isnt a better way and our thinking hasnt done enough running through the options or possible new ones. To hell with costing nuclear. Its back to the drawing board we need.

  5. In 1888 Tamworth, New South Wales, Australia became the first location in the Southern Hemisphere to have electric street lighting, giving the city the title of “First City of Light”.
    So in merely 120 years we have connected so much electricity to power so many things and destroyed so much of the environment its a wonder we are still here…now, imagine what we could do with nuclear if we really tried.

    Make it better?? I dont think so. The mind boggles.

  6. Does that mean that you would prefer living in complete darkness and not having things such as computers, tvs or a fridge?

  7. Some realism is needed on the daunting scale of the problem. Currently renewables are about 3% of the energy mix. We want 20% by 2020, just a short decade away. Most of the current renewable contribution is from hydro which has little growth potential. That still leaves 80% non-renewable. Thus we are not even close to being on track to achieve even an inadequate target.

    This magical thinking really amounts to a vote for unabated coal burning. The coal replacement problem has to generate some very big numbers. Current spending on wind and solar seems to be of the order of tens of millions per year, perhaps slowing due to threats of rebate cuts. If we were on track to achieve even modest targets spending would be of the order of billions per year. Therefore we have effectively locked ourselves into coal.

  8. Coal does not need to be replaced yet. It can be burnt in a much more efficient process and the energy used for the electrification of transport which will result in big cuts to emissions.

    The problem is that it appears that we have locked ourselves onto coal because we have a government fixated on the CPRS. If it has a plan to replace coal, it certainly has not been communicated to the elecorate beyond the fact that a CPRS will somehow encourage renewables and reduce emissions.

    As both Ken and Hermit have alluded to, there are no really big renewable energy projects even planned let alone being built and I don’t class any of the wind farms as really big projects. How is this situation to change with such a pissweak CPRS?

    NB SA has 20% energy from wind or 810MW which I suppose collectively amounts to a big project.

  9. The problem with SA’s .8 GW of nameplate wind power is that it hardly stirs during heatwaves when the State’s electricity demand approaches 3GW. As for solar a typical suburban roof would need to be more than 50% covered in expensive PV to run the air conditioner or heat pump inside the house. Both SA and Vic have gas for now but long run they will have to get new sources of supply. That could be long pipelines to coal seam gas in Qld or conceivably even natural gas from WA. Both Melbourne and Adelaide are likely to hit summer temps of 50C in coming years according to BoM. Apart from the usual fire infernos there will be heat related deaths among the frail. It’s not convenient to cut back on that coal though.

  10. @Fran Barlow
    As I’ve pointed out several times, nuclear and coal aren’t “on-demand supply”, they are fixed supply regardless of demand. In both cases, a large proportion of the power they generate is of low value and has to be priced accordingly to encourage people to consume it.

    For on-demand supply, the leading candidates are gas and hydro, which can be turned on and off at low cost. Looking ahead, there is some progress being made in low-cost storage, which gets around the supply-demand mismatch of coal, nuclear and renewables.

    But the real solution, in my view, lies in smart grids and smart pricing, not in attempts to replicate the characteristics of a coal+gas system.

  11. According to Simon Hackett, Australia’s first Tesla owner, if America’s entire fleet of cars were electrified they could be charged overnight without any extra generating capacity installed. That’s a damning indication of how inefficiently coal is currently used.

    Hermit, there are air conditioners available right now which use one tenth the energy and are run by two solar panels in one case and by solar hot water in several others.

  12. @jquiggin

    As I’ve pointed out several times, nuclear and coal aren’t “on-demand supply”, they are fixed supply regardless of demand.

    That’s true but of course the marginal cost (including to the commons) of supplying energy via nuclear is so low that the difference is moot. One would simply run the system at maximum efficiency and sell what was demanded. Ideally, we’d do some sensible demand management around it — encouraging people to recharge their cars when other demand was well short, running high energy deamnd industry and pumping water more at night, perhaps building up pumped storage with the surplus …

    For on-demand supply, the leading candidates are gas and hydro, which can be turned on and off at low cost.

    The problem here is that the hydro is nearly tapped out and certainly the scope for expanding it is quite limited and as to gas, apart from landfill gas this is a fossil fuel.

    Don’t get me wrong. I’m a pragmatist. If nuclear is out (and in Australia that is clearly the case for the foreseeable future) then gas is the next least damaging thing. Here in Australia I’d also be in favour of solar thermal for desal (and maybe wave machines) after the fashion of North Africa and maybe to do F-T from waste biomass for syngas for liquid fuels, a massive expansion of urban pumped storage and wind … That gets us into the game for the next ten years, after which time perhaps we will bite the bullet and include nuclear power.

    The problem is how to rapidly lose coal from the power supply system, and aside from gas, which is only a 30% better solution in terms of GHGs (it’s better in a number of other ways and if we ramped up biogas and maybe got CSB methane involved a little better than that) there isn’t much else we can do.

    PV is too expensive per unit of power installed and recurrent costs are likely to be very high. And nobody talks about decomm for them either …

    I’m not sure how you believe that smart grids and smart pricing can achieve more than peripheral savings. Sure we will probably waste less and avoid consuming recklessly — good things if the consumption has a footprint, but in the end no amount of demand management can abate the really big usages — industry, refrigeration, heating, water management …

  13. Aluminium producers insist they can only work on baseload power at low cost but perhaps they haven’t tried very hard eg large battery banks. How much the baseload fraction can be reduced (from say 40% of peak) is debatable. Smart meters that can be programmed to respond to ad hoc electricity pricing need to be online and therefore can be hacked. Could be why in Adelaide they want to ration air conditioning by use of radio signals not the internet. I fear that if smart meters were in every home instead of the expected 20-30% electricity cuts it would be more like 5%. That would be due to rebound (eg bigger TV now we shower less) and drawing the line beyond a token sacrifice.

    What could work is soft rationing such as an appliance-specific base electricity rate that quickly steps up to a penalty rate. That could force everybody on to four or five star fridges for example. Battlers would get help from ETS revenues to buy these appliances. That’s if there’s any money at all after the Turnbull amendments.

  14. But the real solution, in my view, lies in smart grids and smart pricing, not in attempts to replicate the characteristics of a coal+gas system.

    My meter looks like it was built in 1965. I speculate my house will have the same meter in 2020, and the grid will be every bit as dumb then as it is now.

  15. The entire aluminium smelting process can be reworked. It won’t be unless the business is subject to a much more credible economic signal – gee, removing subsidies would do it. If they chose to invest in renewable energy for their requirements, even in part, they could make further reductions in overall cost of supply. Perhaps a scheme where the government(s) wean them off coal by shifting subsidisation towards any renewable plant capacity installed or invested in by the aluminium industry. Surely a workable scheme can be figured out.

    As for (short-run?) marginal cost calculations for nuclear power generated electricity, in which the nuclear station is already there and under-utilised, compare directly the cost of project funding for nuclear power plant installation against the cost of project funding of an equivalent wind farm installation. Once nuclear station capacity is reached and exceeded, what are the options then? Add another nuclear plant, or chuck in a few extra wind turbines? If anyone can show some reasonable models of how these sorts of scenarios compare I’d be curious. Part of the imperative is to actually directly substitute for coal as fast as possible, and that means that as a wind farm is incrementally installed and made operational, it is able to counter some of its GHG emissions due to construction against the reduction in coal GHG emissions. Without at least taking this into account, it is difficult to do an apples against apples comparison of nuclear projects and wind energy projects. Barry Brooks has made a good start on assessing resource implications; the overall effect for lifetime of an installation is much harder to foresee and I accept that.

  16. Aluminium producers insist they can only work on baseload power at low cost but perhaps they haven’t tried very hard eg large battery banks.

    I don’t think making already expensive wind energy even more expensive by using batteries has a snow-flake’s chance in hell of economically supplying Aluminium smelters. Aluminium can be shipped anywhere in the world cheaply, so the the rational place to produce it is where the electricity is cheapest. The most economical way of smelting Aluminium is to set up big hydro or geo-thermal schemes at wherever in the world these are the most economical. Wind energy cannot compete with this and neither can coal if its emission cost is included. In a carbon rational world, Coal-based Aluminium smelting would be switched to hydro or some other non-emitting source as soon as possible. If this means moving Aluminium smelting from Australia to somewhere else in the world then so be it.

    Could be why in Adelaide they want to ration air conditioning by use of radio signals not the internet.

    Regarding air-conditioning, we should ask ourselves when is the most economical time to pump heat out of our houses:

    1. When it is the hottest temperature outside or

    2. When it is the coolest temperature outside.

    You don’t need to know much thermodynamics to know that the answer is 2. But in spite of that, 1 happens a lot more than 2. The rational way to operate air-conditioning is to run it when the air is coolest outside which is usually before sunrise and then rely on thermal inertia inside buildings with a reasonable amount of insulation to prevent it from becoming too hot inside until late the following night. Smart metering would make this strategy even more economical.

  17. There is an “imperfect way” of getting value from paying compensation as that appears to be the way things are heading. We pay compensation but require ALL the money to be invested in Australia in renewables (say geothermal or solar thermal).

    As over 90% of the cost of renewable energy are the finance costs (repayments and interest) the compensation money will be spent profitably. Giving coal burners money that they will then use to build another coal fired plant somewhere else on the planet is not a very sensible strategy.

  18. I think financial and other assistance to energy companies for conversion to low emissions energy production is reasonable but what they are being given is assistance to keep burning coal without penalty. This will encourage conversion to low emissions technology how?
    Smart grids? They are building more transmission lines near me in order for low cost Hunter Valley coal to be positioned to undercut proposed gas and sugar cane waste cogeneration on NSW North Coast. Underlying assumptions seem to be little or no impact on consumption from efficiency improvements, no carbon price to make that coal power uncompetitive and no requirements to reduce emissions at the coal power stations. If I thought the energy sector would seriously take up nuclear I’d probably support it just because we need a response that the energy sector is actually in favour of but they currently have no more intention of that than phasing out coal in favour of renewables. What big renewables there are in the pipeline are not their idea, they’d rather not have them and don’t want to have to re-engineer the grid to accommodate them. That’s not a recipe for real change.

  19. @Ken

    Personally, I’d not be all that keen on across the board assistance. In principle, I’d be happy enough with a well designed program to ensure that those who would suffer significant sunk cost losses and wanted to retool were able to do so with minimal loss. For those coal plants in excess of 30 years of age though I’d be inclined to simply regulate them into accelerated retirement as they ought to have known, from 1997 or so onwards, that this was a serious possibility. Where this would cause significant losses to for example, a compliant super fund in Australia, I’d be inclined to give a one-time payment for the value of any asset loss to the funds affected so that members would not lose. Anyone purachasing after this time could take their chances.

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