Adani and the grief to income ratio (from my newsletter)

Adani (now ludicrously renamed Bravus) is pushing ahead with the Carmichael mine-rail-port project, but the financial and reputational costs keep mounting. Having been forced to finance the mine and rail project out of its own funds, Adani is now finding that its Adani Ports business (of which the Abbot Point coal terminal is only a small part) is becoming equally toxic. PIMCO, once its biggest bondholder announced that it would no longer invest in new bond issues. At the same time, S&P reversed a decision to include Adani Ports in its sustainability index because of investments in Myanmar – without the continuous focus of critics, this investment might have escaped notice.

The name changes under which Adani Mining became Bravus and Adani Abbot Point became North Queensland Export Terminal is an indication of the toxicity of these projects.

The continuing struggle against Adani may not stop coal being shipped from the mine, but it will sooner or later make the project a stranded asset, ensuring that most of Adani’s investment is lost.

The bigger picture is that Adani has greatly increased the “grief to income ratio” of investments in any part of the coal production chain. Financiers and suppliers who have agreed, under pressure, to withdraw support from Adani, have realised that they are better off getting out of coal altogether, and are starting to draw the same conclusion about gas.

A recent example is the decision of US insurer Liberty to abandon a proposed mine at Baralaba in Queensland. Liberty had already agreed, under intense pressure, not to insure Adani, and this step was a logical consequence 

This pattern is not unique to Australia. The struggle to stop the proposed Vung Anh 2 coal-fired power station in North Vietnam hasn’t yet succeeded. But companies like Mitsubishi involved in Vung Anh 2 have dumped projects that haven’t yet started and promised to withdraw from coal altogether.  . The Hunutlu coal plant in Turkey, funded by China’s Belt and Road initiative, looks like being the last such venture.

More grief, less income. That’s the future for anyone involved in coal.



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Finkel on getting to zero

Former Chief Scientist Alan Finkel, with whom I worked on the Climate Change Authority a few years back, has a new Quarterly Essay, on Getting to Zero (emissions). Some quick observations

  • It’s far too generous to the current government. However, it makes sense for Finkel to be diplomatic and diplomacy abhors frankness
  • A comprehensive and readable wrapup of the main issues in managing an orderly transition with the current system
  • Most notable, Finkel is very cool on nuclear energy and carbon capture, both of which he has discussed sympathetically in the past

It’s paywalled, but I’ve posted a couple of relevant passages over the fold

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Energy return: ratio or net value (revised)

Quite a while back we had a discussion of the idea of Energy Return On Energy Invested (EROEI) as a measure of the viability of solar and wind energy. I did the numbers for solar (including battery backup) and came to the conclusion that EROEI was at least 10 and therefore not a problem.

The issue has come up in an email discussion I’ve been having. Thinking about it, I concluded that using a ratio of energy generated to energy invested is incorrect. As a starting point, I assume that we want to consider energy separately from market goods in general. Producing new energy requires inputs of both energy and market goods (including labour and capital). Think about this example

Technology A uses 1 Mwh of energy input and $180 of market inputs to produce 10 MWh of energy output

Technology B uses 1 Mwh of energy input and $600 of market inputs to produce 20 MWh of energy output

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No point complaining about it, Australia will face carbon levies unless it changes course

That’s the headline for a recent article I wrote for The Conversation. I meant to post it earlier, but didn’t get to it. Now that Trump is gone, there’s near-unanimous international support for border adjustments. But our government thinks it can bluster its way past the problem, as it does on domestic issues. And if Labor has any ideas on the issue, I haven’t heard about them.

Transmission too

In my article arguing that electricity from solar PV (and wind) could soon be too cheap to meter, I didn’t mention transmission networks. That was for space reasons.

The case for public investment is actually stronger for transmission than for generation. Electricity transmission lines have the same cost structure as renewables (low operational cost and long lives), if anything more so, meaning that the cost of transmission depends primarily on the need to secure a return to the capital invested.

More than this, the electricity grid as a whole is a complex network in which valuing the services of any individual component is just about impossible. That in turn means that relying on markets to make optimal investment decisions is untenable.

For these reasons, the electricity transmission network should never have been privatised. I’ve been arguing for renationalisation for years.

Amazingly, in the new low interest environment, this idea seems to be gaining traction, at least as regards new investment. Labor has proposed a $20 billion public investment. The government hasn’t gone that far, but is seeking to use its own borrowing capacity to provide low cost finance for transmission investment ( a half-baked compromise, but better than nothing).

Too cheap to meter

That’s the headline for my latest piece in Inside Story, looking at the implications of zero interest rates for renewable energy sources like solar and wind. Key para

Once a solar module has been installed, a zero rate of interest means that the electricity it generates is virtually free. Spread over the lifetime of the module, the cost is around 2c/kWh (assuming $1/watt cost, 2000 operating hours per year and a twenty-five-year lifetime). That cost would be indexed to the rate of inflation, but would probably never exceed 3c/kWh.

The prospect of electricity this cheap might seem counterintuitive to anyone whose model of investment analysis is based on concepts like “present value” and payback periods. But in the world of zero real interest rates that now appears to be upon us, such concepts are no longer relevant. Governments can, and should, invest in projects whenever the total benefits exceed the costs, regardless of how those benefits are spread over time.

Hydrogen

It’s now clear that we have the technology we need to run a completely decarbonized electricity generation system. South Australia is the world leader[1] generating more than 50 per cent of its energy from renewable sources, and aiming for 100 per cent renewables by 2030.

The unit cost of renewables is now well below that of carbon-based generation (and nuclear). The remaining big question regarding the economics of the transition is the cost of storage, taking account of the variable nature of solar PV and wind.

As I’ve pointed out before, any reversible process that uses energy is a potential storage technology – that’s true of batteries, pumped hydro, flywheels, stored heat and many more. But hydrogen is a particularly appealing storage technology, because it offers the potential to decarbonize major industrial processes.

Read More »

Every day, coal is killing us

That’s the headline for a piece I just wrote for Independent Australia, looking at a new report from Greenpeace about the harm done by air pollution from coal-fired power, in addition to the climate-destroying effects of CO2 emissions. The report estimates 800 deaths per year, and is, from what I can see, consistent with other studies.

Final para

As a possible recovery from the COVID-19 pandemic comes into sight, it’s time to place human health above the desire to maintain the economic status quo. Australia can and should get off coal by 2030, without harming workers employed in the industry. In doing so, we will be saving both lives and money.