Flat White

Energy reality bites hard

Nick Kastelein

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Nick Kastelein

23 June 2022

9:00 AM

Energy crises have a useful ambiguity to them. Each crisis creates an opportunity for everyone to claim that, ‘It would never have happened if we’d just done what they said all along!’

Everyone, that is, except the people who actually did do what they said – they have to sit down and explain why it was both unforeseeable but will resolve if we just continue doing what they say.

Reality always wins. Politicians can argue, investors can throw around money, and journalists can spin dramatic headlines. Energy does not care.

What we knew was coming

Several years ago, I attended a Lunch & Learn by the CEO of the Clean Energy Council. He put up a slide listing all the Australian coal-fired power stations that would be reaching the end of their design life in the next thirty years. It looked something like this:

He then put a question to the group: ‘Why wouldn’t we replace these with the cheapest form of energy available?’ It sounds obvious. At the time, a wind farm had been approved with an agreed price of only $55/MWh, which is a very low cost.

The problem with this argument (as I previously pointed out here) is that you may be paying less for wind and solar, but you aren’t getting the same thing. Coal-fired power stations not only provide energy, they provide available capacity when the wind isn’t blowing, frequency stabilisation, and a single connection for a large energy supply.

If we replace them with wind then we need wind farms, but we also need energy storage, frequency control systems, multiple connections – some of those with long transmission lines.

I challenged the speaker with expensive reality after his presentation. He replied, ‘Yes, but nobody knows the cost of those things.’ How is that an acceptable answer? If nobody knows the cost, you can’t just assume it is zero. That is beyond moronic, it is flagrantly dishonest.

Here is a useful bit of information – the larger the portion of supply that comes from wind and solar, the more supplementary infrastructure is required.

When renewables are supplying less than 20 per cent of total capacity, their shortcomings can be accommodated elsewhere in the electricity network. Above this, they begin to create significant issues.

South Australia had to install a battery, synchronous condensers, additional backup generation, and relies heavily on its connection to the rest of the NEM through an interconnector. The Grattan Institute report Go for net zero showed that even achieving 90 per cent renewable would be significantly easier than 100 per cent.

For this reason, after attending the IEA lunch, my conclusion was this: For now, we may be able to replace the coal generation we have lost with a combination of renewables, supplementary infrastructure, and other flexible backup generation (i.e. gas-fired open-circuit generators). So far we have indeed handled the closures of one-third of our coal plants, equivalent to about 20 per cent of energy supply.

Source: Burke, PJ., Best, R. and Jotzo, F. (2018), Closures of coal-fired power stations in Australia: local unemployment effects, CCEP Working Paper 1809, September 2018, Crawford School of Public Policy, The Australian National University.

This is unlikely to continue.

The sheer volume of energy that we will need to displace is large. The question is not whether the network can handle more renewables, but where they will even be installed and whether they can be built fast enough.

Eventually, the storage problem will be revealed as just that – a problem. We may have to hold our noses and build more coal-fired generators. If we aren’t willing to do that then the only remaining compromise, as conservative commentators have been saying forever… may be to build some nuclear power plants.

Yet the clear and loud objective of the clean energy council (which is a lobby) and many other parties, is to ensure this doesn’t happen. Their firm belief is that we can replace our fossil fuel generation with renewables. Worse, however, the attitude of many is that if they directly oppose coal-fired power, then they will force the change that they want.

Last year, when the International Energy Agency released its first Net Zero by 2050 report, it said the following: ‘There is no need for new investment in fossil fuel supply in our Net Zero pathway.’

In the pathway, there were two milestones for 2021: ‘No new unabated coal plants approved for development’ and ‘no new oil and gas fields approved for development’. Considering the two energy crises that have occurred in 2022 – oil and gas shortages and coal shortages – they appear to be getting what they wanted.

The Australian energy stalemate

The future of our existing fossil-fuel assets has been topical for a long time. Back in 2017, it raised its head with the announcement of the closure of Liddell. You may recall that several conservative politicians (Tony Abbott, George Christensen, etc.) fought for Liddell to remain online and tabled nationalising it as a means to force its sale rather than closure. This was based on a kind of compromised view – if we are not going to build any new coal power, then at least we must try to get our current coal power to last as long as possible, to reduce the shock to the system.

Some green idealists, however, responded with the opposite aim. They desire to close the coal plants as fast as possible to fulfil their primary goal – leaving coal in the ground. The most notable manifestation of this view is Mike Cannon-Brookes’ recent actions. Having earned billions from software development, he tried to team up with a Canadian investment company Brookefields to purchase AGL. The stated aim was to accelerate coal power-plant closures.

AGL rejected his bid, and the board advanced a demerger proposal. The demerger would result in two companies, only one of which would hold all the coal generation assets. AGL has been responsible for building and managing a large number of renewables projects all around Australia, yet because they also own coal assets, they are demonised and considered untouchable for green investment. In response, Mike Cannon-Brookes bought 10 per cent of the company and sent a letter to the rest of the shareholders asking them to vote against the demerger. The board gave up the plan for the demerger, and several board members announced their impending resignations.

Image: Try finding a super company that doesn’t actively promote Net Zero.

AGL is in an unworkable position – no one wants to invest in their work. At the same time, as a major generator, they have obligations to the market operator. They are required to retain generation capacity or replace capacity that they remove, without compromising grid stability.

Further evidence of the stalemate that has existed in the energy business over the last few years is the Kurri-Kurri project. When the federal government realised that the NEM would need more generation capacity once Liddell closes, they were essentially forced to construct the new Kurri-Kurri power plant themselves, because the private sector wouldn’t do it. It should have been the safest investment around – critical infrastructure with government backing. And yet the political and social climate has everyone terrified of putting money into fossil fuels.

The project has faced continuous negative media, including Matt Kean.

Hopefully, the projects detractors can now feel egg dripping off their chins. The current energy crisis is clear evidence that additional generation capacity will be welcome and possible not even enough (SA’s state-owned diesel generator has certainly been getting a workout over the last month!)

SA power mix – seven days (11 to 18 June 2022)

Machines don’t suddenly fail the day that they reach their design life. Power plants are really just giant engines, similar to the one in your car. Imagine you were driving your car continuously for 50 years. Would you expect it to start needing maintenance at the end of that? Eventually, your car would need so much care that the maintenance costs would exceed the value that the car returns, and you are better off getting a new one.

Currently, we have two simultaneous crises. The first is international. The entire world is facing a fuel availability crisis caused simultaneously by the after-shocks of the Covid pandemic (demand recovered at a rapid rate after the pandemic) and the Russia-Ukraine war. This has been exacerbated by some government policies and a hostile investment climate. The latter two issues work together in a negative feedback loop stoked by green activists – the more government policy is hostile, the more reluctant everyone is to invest. This international energy problem is felt mainly through the current high prices.

The second crisis is local. The energy market operator reports on reserve capacity. This is the amount of additional electricity generation that is available to the market if needed. If reserve capacity becomes less than the two largest generators in the system, this is called a Loss of Reserve (LOR) level 1 event. This means that if we had a sudden shutdown of our two largest generators, the system would have insufficient capacity to meet demand.

If capacity goes below the single largest generator, this is called a LOR 2, and means that losing the largest generator could trigger a supply shortfall. LOR 3 occurs when there is an insufficient reserve, and the operator expects to have to trigger intentional blackouts for load-shedding.

This local crisis is only tangentially related to the international one. It occurred mainly because some ageing infrastructure had issues and needed to shut down. As can be seen on the following graph, Bayswater, one of the largest suppliers to the system, lost two generators between June 7-9, reducing it to a third of its registered capacity (one of them came back online just two days ago). Since late May, Liddell has been running only 2 of its 4 generator trains. Gladstone in Queensland is also operating well below its registered capacity.

Bayswater generation

Writers for The Guardian, RenewEconomy, many journalists at the ABC, and probably every Teal Independent, argue that the current crisis proves that coal is the problem. After all, the coal infrastructure is to blame, so we wouldn’t have these issues if it wasn’t there, right? But the current issue is being caused by only a partial supply shortfall of coal power. What if we lost it all?

At the risk of repeating myself, I must stress: wind and solar can’t solve this problem. 100 per cent supply shortfalls of solar are a daily occurrence. It’s called nighttime. Supply shortfalls of wind are a weekly occurrence at least. The NEM was operating on only 1 per cent wind just two days ago. Comparing solar/wind supply with coal is to make a category error. One cannot replace the other until we have bulk energy storage infrastructure, which currently, simply, does not exist.

Conclusion

Last year, the IEA ‘Net Zero’ roadmap received two different receptions. Some perceived it as what it claimed to be: a pathway for Net Zero 2050. Where the report said that all government, people, private sector across the whole world would have to ‘work together’ to ‘act immediately’, they believed that this is what must surely happen because Net Zero by 2050 is the only option.

Others (like me) received the report as a clear statement that Net Zero by 2050 is doomed. When it listed seven things that would all have to happen in order to achieve Net Zero by 2050, and all of them were virtually impossible, and on further inspection, its assessment of the state of technology was even optimistic… It didn’t look like a roadmap to a place this planet is going anytime soon. In my view, unless a significant technological advancement comes along, we will not be achieving Net Zero by 2050.

The current buzzword is ‘the energy transition’. Note the definite article ‘the’ – it is spoken about as if it is a fact, and yet it is not a transition driven by natural causes. Any natural drivers for change – such as scarcity or competitiveness of new technology – are many decades away. This is a transition that requires a forced change. Hence, the persistent focus of its proponents on government action and divestment.

Yet this is our power supply that they are messing with. When there are supply shortfalls in the electricity market, people die. And they don’t die in twenty years due to global temperature rises, they die tomorrow. Unlike the ‘climate emergency’, electricity supply shortfalls actually meet the definition of an emergency.

If Australian billionaires and investors wish to effect an energy transition, then they are free to build the technology needed to do it. They can build batteries and develop tidal technology, geothermal, or solar, they can support better housing insulation, they can make hydrogen or ammonia or biogas, they can make electric vehicles… They can do whatever floats their boats. But until they have, they need to stop demonising and sabotaging the infrastructure that already exists and is keeping us alive.

That’s the reality, and reality always wins.

Got something to add? Join the discussion and comment below.

Published by Nelle

I am interested in writing short stories for my pleasure and my family's but although I have published four family books I will not go down that path again but still want what I write out there so I will see how this goes

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