Finance Finance News Is coal dying? Deciphering the new AEMO report

Is coal dying? Deciphering the new AEMO report

Coal-fired power stations will be with us for a while yet.
Energy companies gouging customers will get the "big stick" treatment, the PM vows. Photo: Getty
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The future of Australia’s dirtiest habit, coal-fired power, was laid out in stark detail in a report on Tuesday, and instantly spawned a mass of confused and contradictory interpretations.

Coal-lovers interpreted it as proof that coal has a long future in Australia. Environmentalists claimed it sounded the death knell for the most carbon-heavy of all the fossil fuels.

Others read it as a pragmatic solution to a thorny issue.

But what did it really say? On one point the report, by the Australian Energy Market Operator, was unequivocal: ultimately coal will disappear from the Australian energy mix.

However, AEMO said Australia’s coal-less future was still a few decades away and – here is the most controversial point – until we get there, the government needs to make sure our existing coal-fired power stations stay open.

Tony Wood, energy program director at think tank the Grattan Institute, told The New Daily that this was entirely in keeping with all current assumptions.

He said it did not play into the hands of pro-coal campaigners, and that it was not necessarily bad news for the environmentalist cause.

Some environmental groups agreed. Others – most notably Environment Victoria – passionately disagreed.

But before getting into their arguments, lets look at the report itself.

What the report said

AEMO is a not-for-profit joint venture between federal and state governments and energy companies. Its job is to run Australia’s energy market.

By 2040, AEMO expects a large number of coal-fired power stations to reach the end of their life, and does not expect new ones to replace them.

This is a huge event in Australia’s energy history. It will take approximately one-third of the power currently flowing around Australian electricity lines out of the system.

If these coal-fired power stations are kept open until 2040, then AEMO expects other non-coal generators to have time to establish themselves to pick-up the slack. However, if they close before 2040, there could be trouble.

Here is the key passage from the report that addresses this issue: “To support an orderly transition, ISP analysis demonstrates that, based on projected cost, the least-cost transition plan is to retain existing resources for as long as they can be economically relied on.

“When these resources retire, the modelling shows that retiring coal plants can be most economically replaced with a portfolio of utility-scale renewable generation, storage, DER, flexible thermal capacity, and transmission.”

In other words, keep the coal-fired power plants running for the next 20 years or so – i.e. don’t let the companies that run them shut them down prematurely – and when they die let renewables and gas take over.

At the same time, AEMO also recommends investing in the energy network itself, to make it easier to distribute power generated in one part of the country to another. This would make the network more efficient, and less energy intensive.

AEMO estimates all this will cost between $8 billion and $27 billion.

‘Neither pro-coal nor anti-coal’

Mr Wood told The New Daily AEMO’s report was an impartial “technical” report.

“This is neither pro-coal nor anti-coal. It doesn’t support closing [coal-fired power stations] as early as environmentalists would like, but nor does it say we should keep them open. It says they should close down when they should close down.”

But importantly, from the environmental perspective, Mr Wood said the report would allow Australia to keep its commitments to reduce carbon emissions – both the more modest reduction of 28 per cent by 2030, and the more ambitious reduction of 52 per cent by 2030.

“This is a very technical report. It says if you have to meet both emissions targets and reliability, then this is the most affordable way to do it.”

The Climate Council was also fairly positive about the report.

However Environment Victoria was scathing of the recommendation to encourage coal-fired power stations to stay open as long as possible.

“Any suggestion that we should burn coal for as long as possible is ridiculous and totally fails Australians’ interests when it comes to climate change,” Environment Victoria campaigns manager Dr Nicholas Aberle said.

He said AEMO should have been forced to take climate change into account when writing the report.

Energy Minister Josh Frydenberg welcomed the report, calling it an “important step towards ensuring our energy system is based on engineering and economics rather than ideology”.

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