Energy 21st Century Style

Energy costs across the country have been rising inexorably for the past five years. The region has not been immune.

While many diverted valuable political and social capital towards boondoggles like loss-making football stadiums, business viability and household living standards were being eroded by a structure of energy generation, delivery and consumption that left North Queenslanders vulnerable.

Misplaced priorities are matched only by the poverty of analysis and understanding of key dynamics in energy provisioning in Australia generally, and the North specifically. Instead, what we’ve seen are unrealistic hopes being foisted onto the local community that somehow a new coal-fired base-load power station in our neck of the woods is the answer to our economic woes. (Let’s not forget that a year ago, we were told that we only needed one catalyst … a footy stadium … but I guess a year is a long time.)

Cheap local baseload is the clarion call. And it must be coal-fired. It’s a great sound bite.

The most recent instance comes from none other than the boondoggle booster-in-chief, Townsville Enterprise (TEL). Having diverted scarce public resources into the low priority financial dud that is the footy stadium, TEL now leads the charge for a new so-called ‘super critical high efficiency’ coal-fired power station to be built in the region.

This comes on the back of recent musings by TEL’s CEO that the old Collinsville power station could be the site for just such a plant. Pity for the CEO and the TEL narrative that just as these thought bubbles were aired, the site owner was in the final stages of decommissioning the plant in readiness for a planned solar farm. The solar farm has since achieved financial close.

The Thought Bubble Got Popped by Reality

Wind the clock back 3 years and we’ve a report, prepared under the auspices of TEL, that asked whether a coal fired power station in the Pentland area would be viable. The report concluded that at best, it would be marginal, but more likely would fall into the ‘difficult investment’ category. The report also noted that the business case for the coal fired station would suffer if alternative generation facilities were to come to market.

The World Continues to Move On

And that is exactly what has happened. Since the Pentland study was released in mid-2014, the region has seen a number of renewable energy projects – at scale for grid supply – take shape and achieve financial closure. These projects, on last count, amount to additional generation capacity of 2,200MW, covering North, Far North and North West Queensland. Of these, approximately 300MW is now being built, to which can be added the extra 115MW of solar being developed at Sun Metals.

The World is simply moving on.

Just as industry is developing at-scale renewable projects, the household sector and small-medium enterprises also are finding alternatives to the traditional ‘hubs and spokes’ model. Technological developments in generation, trading/sharing and demand management are all enabling distributed approaches to be considered, and adopted.

The explosion in residential rooftop solar is a case in point, but what’s remarkable about this space is recent research by Energy Consumers Australia that a growing proportion of consumers have by and large lost faith in conventional electricity suppliers and will – as soon as they can afford it – install domestic renewables coupled with battery storage (36% of Queensland households are already considering installing batteries, according to the results of the December 2016 ECA survey). Indeed, ECA research indicates that 82% of consumers who’ve installed solar did so to become les dependent on ‘the grid’.

Commercial buildings also are moving down the ‘grid independent’ path. Over the next few years, we can expect to see more technology-enabled micro-grids and so-called ‘behind-the-meter’ solutions pop up across our business landscape.

What I’ve just described is simply what is happening. It’s happening because it makes financial sense and, by and large, that’s where the capital is flowing. Investment is focused on energy self-reliance and demand side management to address peaks. 

Like the stadium boondoggle, a desperate government or opposition could easily fold to electoral cycle bullying. 

Some Numbers

Despite the clarion calls for regional ‘baseload’, the fact is there is no shortage of baseload power in the Queensland system.

In fact there’s a significant surplus of generation capacity over current and forecast demand. The energy regulator’s assessment is that over the medium term there is plenty of surplus capacity (www.aemo.gov.au). When did anywhere in Queensland last experience an outage that wasn’t associated with unusual peak conditions or a transmission-distribution network failure?

Total installed capacity in Queensland is in the order of 13,676MW. Of this, coal fired baseload power stations have a combined capacity of 8,158MW (59%). There are 9 coal fired power stations, the oldest being Callide A (52 yrs), followed by Gladstone (41 yrs), Tarong (31 yrs) and Callide B (29 yrs). Kogan Creek, with 744MW is the youngest at 10 years. Add to this 4,047MW of gas-fired capacity and we’ve 12,205MW or 89% of the State’s capacity based on fossil fuels. We’ve also got a further 1,600MW of installed rooftop solar capacity and growing. Solar at scale has a planned capacity of 4,399MW, with almost all of this yet to come onto the market (but will in the next few years).

Base summer demand in the State is in the order of 7,500MW. The highest peak load demand last summer was 9,000MW. They haven’t really been rising lately. Existing baseload is already surplus to base demand, and there’s also a substantial surplus of gas capacity over shoulder and peak demand. Throw in the impact of residential solar on net peak demand, and you’ve got a rapidly changing energy usage profile, which frees up conventional coal fired baseload during large parts of the day.

Ergon’s total load across its network (basically everywhere outside of SE Queensland) peaks at 2,500MW with base load around 1,600MW. The peak is late afternoon, when people get home from work. Townsville North Queensland’s load is just one part of this, about 500MW.

Add another baseload station to the current mix and the simple consequence is that some of the existing baseload capacity will be mothballed, assuming the new capacity can bid in cheaper than the older units. This assumption remains to be tested. Either way, because there’s already a surplus of baseload coal capacity, adding more is unlikely to place downward pressure on wholesale pool prices. Pool prices are set by the last bid, not the first, to meet prevailing demand.

Demand levels and trajectory are the system constraints, and the real question is peak demand trajectory. Overall demand has, in fact, fallen since 2010 and with increased energy efficiency through demand side management and new technologies, the rate of future demand growth is likely to be far more modest than was the case in the distant past.

More baseload supply in these circumstances is simply not the answer.

Additional shoulder and peak capacity or peak-shaving appears to be the fundamental opportunity-cost question that needs to be addressed.

Furthermore, whatever the wholesale pool prices, almost all energy users (households and businesses) can’t buy direct from either generators or the wholesale market. They buy electricity from retailers. The price charged by retailers is heavily regulated, which includes a substantial component notionally to cover the costs of transmission and distribution networks.

In this context, so long as North Queensland is linked to the State system and ultimately to the National Electricity Market, overall system dynamics and regulatory provisions will trump. If the business case for local coal fired power was so good, how is it that Collinsville was shut down and decommissioned?

Incidentally, Rockhampton is in super-close proximity to Stanwell (23km), yet it hasn’t actually benefitted from lower energy prices. There’s a fundamental lesson in that for those who think an NQ base load power station will some how miraculously reduce regional prices.

Will It, Won’t It?

Given the existing surplus of coal fired baseload supply over base demand, the only meaningful question is what you’d replace an ageing coal unit with when the time comes to retire it? Put another way, you’d probably be well advised to consider whether it’s more sensible to extend the life of an existing plant than commission a new one. Queensland’s oldest coal plant is Callide A, which has a capacity of 30MW. At 52 years of age, there’s probably not a strong case to keep it going given its modest capacity. It rarely gets dispatched anyway. Gladstone is the big one: 1,680MW of capacity at 41 years of age, followed by Tarong (1,415MW, 31 years).

Given rapid developments in all sorts of technologies, there’s a good case to defer major capital commitments as long as possible, and only install capacity on an incremental basis with rapid planning-commissioning cycles. Stranded or under-utilised capital is a deadweight on the community. As the residential sector shifts inexorably to a prosumer model (mainly solar PV+battery), good old fashioned baseload will be freed up for commercial and industrial uses.

Quicker and more flexible seems to be the direction things are going. Which is one of the reasons why even the Australian Industry Group does not think additional coal fired baseload capacity is likely to be part of the future answer.

Like the stadium boondoggle, a desperate government or opposition could easily fold to electoral cycle bullying. That’s the mendicant model at work. But just because electoral extortion can be effective doesn’t make the result a good one. Indeed, too much supply in conditions of subdued demand will see costly public investment sit idle; and that’s about as silly as having a stadium that is activated around 1.3% of the time, while it sits un-used but depreciating for the rest.

It will actually create upward price pressures.

The risk we run with regional energy futures is once again a simplistic approach, which will result in adverse financial and economic outcomes for the community. We deserve more than sloganeering and better than jawboning.