An island made of coal

Coal is fast disappearing from the future of the global energy mix. As the EIA noted this week:

The U.S. Energy Information Administration’s latest International Energy Outlook 2017 (IEO2017) projects that world energy consumption will grow by 28% between 2015 and 2040. Most of this growth is expected to come from countries that are not in the Organization for Economic Cooperation and Development (OECD), and especially in countries where demand is driven by strong economic growth, particularly in Asia. Non-OECD Asia (which includes China and India) accounts for more than 60% of the world’s total increase in energy consumption from 2015 through 2040.

Through 2040, the IEO2017 projects increased world consumption of marketed energy from all fuel sources, except for coal demand, which is projected to remain essentially flat. Renewables are expected to be the fastest-growing energy source, with consumption increasing by an average 2.3% per year between 2015 and 2040. The world’s second fastest-growing source of energy is projected to be nuclear power, with consumption increasing by 1.5% per year over that period.

To get an idea of how fast the prospects of coal are sinking, check the same chart from just four years ago:

In another four years I predict that line will be dropping fast. Why? Because not everywhere is made of coal like Australia is. Via Alan Kohler:

…you can bet that the Coalition government and its media supporters will argue that the electrification of transport makes it even more necessary for there to be more “baseload power” from coal-fired power stations — how could we possibly charge millions of cars, and run millions of airconditioners and fridges if we let Liddell close in 2022?

And they might have a point — if you thought, as most Coalition MPs apparently do, that global warming is a lie. Otherwise you would think that electric cars make it even more important to switch from coal to renewables.

This is the underlying reality of Australia’s energy debate: a majority of the government does not actually believe the science of climate change. Not really.

They might say they do for political reasons (that is, votes), but if they believed, or even heard, the predictions of almost all of the world’s scientists, there would be no question of keeping Liddell going, or building new coal power stations, or doing anything than whatever it takes to stop global temperatures rising.

…And the gulf between right-wing politics and science is not confined to Australia, although it seems to be wider here than in most counties, with the possible exception of the US.

In fact scientists have been moderating what they say about the impact of climate change for fear of being ignored as too extreme, or of causing panic.

But occasionally what scientists really see as the terrible truth emerges, such as a recent piece in New York magazine in July, resulting from dozens of interviews with scientists.

It starts: “It is, I promise, worse than you think. … absent a significant adjustment to how billions of humans conduct their lives, parts of the earth will likely become close to uninhabitable, and other parts horrifically inhospitable, as soon as the end of this century.”

That top chart also tells you how the world plans to rid itself of coal. Note the smooth and concurrent rise of gas and renewables as coal declines. We once planned to do the same: to allow lower-carbon gas to substitute coal for base load power as renewable tech catches up. That’s why, despite all of the ridiculous politics of the day, we still managed to put enough policy in place to drive coal usage out of business.

Until now. Because now gas prices have gone nuts. Not because of our carbon transition plan is using more of it, no, we’re using less! It’s because a gas cartel is dumping all of the local gas reserves into Asia at huge losses via white elephant LNG plants, while they create an artificial shortage here that they can exploit to price gouge. And because gas sets the marginal cost of electricity in the eastern economy, power prices have been driven nuts too and that has opened a window through which the climate skeptic zombies have climbed to eat our brains.

All we need to do to get everything back on track is lower the price of gas. That fixes EVERYTHING.

Colin Barnett knows it:

It is obvious a new and reliable source of energy needs to come into the domestic market. And yes, the opportunity should be taken to ensure it is cleaner energy.

Gas is an obvious solution. The emissions from a combined-cycle gas plant are less than half of that from a coal-power station. Assuming the bans on CSG remain in place, the only alternative is to make better use of Australia’s conventional, or reservoir, gas.

There are two obstacles. The first is the political influence of the coal lobby and the renewable lobby, both of which see gas as a competitor to their own interests. And second, the gas is a long way away.

Australia has conventional gas reserves of about 167 trillion cubic feet. Australia’s domestic market consumes just 2TCF of gas a year. In other words, there is easily more than 75 years of gas available, with more to be discovered. The problem is 95 per cent of this conventional gas resource is off the Western Australian and Northern Territory coasts.

To make use of this gas and thereby solve the energy shortage requires a transcontinental pipeline. It is true LNG could be transported by ship, but that would tie Australia into international prices and therefore sacrifice a potential gas advantage at home.

The pipeline would need to connect the northwest coast to the existing gas infrastructure at Moomba in central Australia. That is about 3000km. The estimated cost is about $5 billion, which is significant, but should be seen in the context of the national broadband project that is costed at $49bn.

…Surely it is time for some pragmatism and common sense. Surely we should use more of our gas for Australia.

AIG knows it:

Almost five years ago, Ai Group declared that “the gas crunch is here” and warned that continued uncertainty over energy and climate policy would undermine investment in the electricity sector. This was met with derision and disbelief. Up until late 2016, when South Australia blacked-out and gas contract prices surged past international parity, many policy makers and their supportive commentators thought the idea of a policy failure was mischievously alarmist. On reflection, we were not sufficiently alarming. Large parts of Australian industry now risk being crushed as their energy costs double or triple. Eroding energy security means businesses can’t safely plan. Efficiency and self-generation can help many, but require resources to pursue.

Ai Group can’t see material new local gas supply until the early 2020s. Major new gas fields, east-west pipelines, or a proposed gas import terminal would take years to arrive. Only diverting gas from export can help in the near term. Commercial swap deals are best, but it is vital that the Federal Government maintain the pressure for these by proceeding towards invoking export controls for 2018.

Futures markets say electricity prices will come down a bit as gas generators reopen and wind and solar comes online. But more supply is needed, especially as coal power stations retire. Variable renewables are getting cheap, but they bring a need for investment in dispatchable power to back them up. It can take years to get a new project built – perhaps eight years for a new coal generator, even if it was bankable – but the current RET tops out in 2020 and beyond that the investment case for any technology is cruelled by uncertain policy.

Chief scientist Alan Finkel deserves credit for an excellent blueprint for solving our energy challenges. It is pleasing that 49 of his 50 recommendations have been accepted.

The remaining recommendation for a Clean Energy Target (CET) awaits its fate. For most businesses, some form of CET, although not perfect, appears to be the best remaining way forward – subject to a final design that meets tests for competitiveness and reliability.

Clarity in this policy area is essential if owners of coal-fired generators such as Liddell are to make sensible decisions about re-investing, maintaining or closing operations. Another round of prolonged squabbling over a CET would be the final straw for many in industry. There is no time to waste. We need an agreed bipartisan pathway forward.

Industry is simply over it. Businesses will as much as possible work through this price cycle, finding cheaper alternatives and introducing efficiency measures where possible, but a further period of high prices or frequent blackouts would decimate confidence. We need clarity, coordination and continuity now.

A good start would be for the Prime Minister and Opposition Leader to recognise the national tipping point, put their differences aside and hold a national energy summit to get durable national policy in place.

Locking the Government, Opposition, Premiers, energy suppliers and industry and other energy users in a room until a path forward is agreed might be the catalyst we need for certainty over price, supply and emissions targets.

How about “Locking the Government, Opposition, Premiers, energy suppliers” in a room then throwing away the key.

The transitional fuel need not last forever. Once the renewable + battery killer app is upon us, the transition goes up another gear. As noted last week, utility solar and wind are already cheaper than coal and costs are still crashing, and batteries are next, from Bruce Mountain CEO of Carbon and Energy Markets at the AFR:

There have been astonishing developments in other areas. The installed cost of photovoltaics (solar panels) have declined by about 80 per cent over the past seven years. Despite patchy policy support, it has taken just seven years for photovoltaics to reach one in five detached houses. Electricity produced by photovoltaics on a roof typically costs about one-sixth of grid-supplied electricity. It is no surprise that photovolatics are now being installed at record rates not just on household roofs but also on farms and in businesses.

And now the trajectory of costs in batteries, particularly those with lithium chemistries is declining even more steeply than we have seen in photovoltaics. The combination of battery and photovoltaics installed behind customers’ meters now promises to meet customers’ needs more cheaply than grid-only supply.

South Australia suffers from concentrated electricity markets, dependency on expensive gas and structurally high network charges. The combination of behind-the-meter photovoltaics and battery with the grid for back-up is already cheaper than grid-only supply for most small customers in SA. While batteries plus solar and grid back-up is not yet viable for most customers in the rest of Australia, the gap is small and quickly getting smaller.

If the federal government is determined to deliver lower electricity prices, it might focus its effort on ensuring that demand is more responsive to short term price signals, and on making up the narrowing shortfall needed to encourage widespread uptake of distributed batteries. Such policies will not be difficult to develop or implement, they will require outlays many times smaller than those needed to build baseload coal plants, and will show results during the term of a government.

Such policies will, however, speed up the nonetheless inevitable decline in many customers’ reliance on the shared power system. Generators and retailers should be expected to adjust without assistance: they operate in a market after all. The shared grid still has a future albeit different to its past and even in a declining market there will be ample opportunity for investment in decarbonising electricity production.

Fat chance on that last point but the thrust of the argument is fair. We reckon within four years that utility-scale renewable+battery will be killing coal hand-over-fist:

Spending billions, bullying markets, creating chaos, all to keep a doomed energy source alive.

The answer is obvious. Reserve more gas, promote energy transformation and energy costs will tumble short and long term.