Issue 56, October 2009

Big baseload NSW plans

Two of the New South Wales Government’s three generation companies have opened bids for regulatory approval to build 2,000 MW (or more) of baseload capacity to ward off supply problems in the second half of the next decade – however the proposals have an ambiguous future because, under the Rees Government’s plans to privatise part of the sector, it is unlikely that the State-owned corporations will be the builders of the projects.

Macquarie Generation has proposed the construction of either five 400 MW gas-fired units or two 1,000 MW coal-burning units at its Bayswater complex while Delta Electricity has put forward development of six 400 MW gas units or two 1,000 MW coal plants at its Mt Piper site, near Lithgow and the Blue Mountains.

The projects – only one of which is likely to be built, if the concept can get environmental approval – are instantly highly controversial because, in the case of the coal option, either would add almost 12 million tonnes a year to Australian greenhouse gas emissions at a time when the Federal Government is targetting a 138 million tonne a year abatement level by 2020.  The gas plants would each contribute about an extra six million tonnes of greenhouse gases.

The proposals are being put forward as necessary to ward off supply security problems in New South Wales around 2016. The State is forecast to increase its population by 600,000 in the next decade and the generators are warning that, without a major baseload development, the existing coal plants, some of which will be 45 years old by 2016, may not be able to cope with the production pressures.

Writing the application for Macquarie Generation, consultants AECOM says the State’s electricity production in 2008-09 reached a record 80,430 gigawatt hours, of which the coal-fired State-owned generators contributed 86 percent and 5,900 GWh was provided from interstate. The power requirement for 2016-17 is projected as 92,000 GWh and the consultants say that, without additional baseload capacity being built, this is when shortfalls could occur.  By then, they also point out, some of the existing capacity will be up to 45 years old and the ability to sustain its operation will be in question.

The proposals are not made as an alternative to investment in renewable energy – required by the recently-passed renewable energy target legislation – but in addition to them in order to meet baseload requirements.

Recourse to nuclear power is discounted, both because of the State Government’s stand against it and because a plant could not be commissioned before the end of the next decade.

New renewable generation is predicted to provide 3,700 GWh a year by 2016 in addition to existing delivery from such sources of 5,200 GWh a year.

Construction of gas plant to meet the extra baseload requirements is estimated by the two proposals to require supply of between 112 and 130 petajoules a year, drawing to a large extent on coal seam methane.

Government goals

In a speech to the Committee for Economic Development of Australia (CEDA) this month Resources & Energy Minister Martin Ferguson has spelled out the four goals of the Rudd Government’s energy policy: (1) to reduce Australia’s greenhouse gas emissions, (2) to produce 20 percent of electricity from renewable sources by 2020, (3) to ensure Australia has adequate, affordable and reliable energy and (4) to make Australia a reliable trading partner in the Asia-Pacific region, contributing to energy security.

Meanwhile, Belinda Robinson, chief executive of the Australian Petroleum Production & Exploration Association, has told the World Gas Conference in Buenos Aires that national LNG development is “poised for game-changing growth.”  However, she again sounded a warning to federal and state governments at home to focus on removing regulatory hurdles to development, saying that policies that seek to regulate upstream gas markets and/or price will lead inevitably to less investment, less diversity of supply, less gas production and, consequently, higher domestic gas prices.

Hurdles for wind

The AECOM report supporting the Bayswater development for Macquarie Generation effectively gives the thumbs down to large-scale use of wind power in New South Wales.

The State’s location in a sub-tropical high pressure region, say the consultants, means that it is an area of low annual average wind.  Wind generation in NSW, they add, has been confined to a number of ridge lines where resources are adequate.

The best available resources, say AECOM, are mostly remote and will incur high transmission development costs and line losses.  “Large areas would be required to generate an amount equivalent to baseload coal or gas-fired technology, “ they add, “and the costs of installation would be two to four times more expensive than fossil-fuelled plants.”

CCS’s uphill struggle

In its report supporting the Delta Electricity proposals for new development at Mt Piper, consultants Sinclair Knight Merz say that initial Australian coal capture and sequestration costs are expected to be as high as $150 per tonne of carbon dioxide., although decreasing as the technology develops.

Given the current uncertainty in capital costs of the CCS technologyVestas Australian Wind Technology, the local arm of the world’s largest wind farm equipment manufacturer, headquartered in Denmark, reckons that the new mandatory renewable energy target will see about $25 billion spent here on 10,000 MW of new projects.

The forecast was contained in the company’s submission to the Senate Economics Committee when it considered the RET legislation.

Big gas contribution

The Energy Networks Association says that the natural gas industry – upstream and downstream – contributed $21 billion to Australia’s gross domestic product of $953 billion in 2006-07, the latest year of official data.

ENA chief executive Andrew Blyth says the proved, probable and contingent reserves of gas are now estimated to be 173,000 petajoules. “one of the most significant drivers of growth and change in the industry,” he adds, “will be the substantial role gas can play in greenhouse emissions reduction.”

Meanwhile in Buenos Aires 3,200 gas industry executives and other stakeholders. Including Australians led by Origin Energy CEO Grant King, gathered for the World Gas Conference, with Petroleum Economist magazine saying that the rise of the gas industry in Asia looked “unstoppable.” Australia’s steady emergence as a global LNG player, it added, was coming in tandem with China’s renewed campaign to increase its domestic gas use. Demand in China is reported to be growing by 10 percent a year, pointing it towards becoming the world’s third-largest market by 2020.

For gas to live up to its billing as the transition fuel in the world’s shift to a low-carbon economy, supplies must be abundant and affordable, the magazine comments. “Finding a level low enough to encourage demand, but high enough to encourage development of infrastructure will be difficult.”

Powering Australia Forum

Federal Resources & Energy Minister Martin Ferguson will launch at the 2009 edition of the “Powering Australia” yearbook at a two-day forum in Brisbane on 10-11 November.

The yearbook is edited by Keith Orchison of Cooliban Pty Ltd – who will chair the forum, which will include presentations by Jon Jutsen, executive director, Energetics, Jon Stanford, Deloitte partner, Paul Balfe, managing director, ACIL Tasman, Hugh Gleeson, CEO, United Energy Distribution, Doug Aberle, CEO, Western Power, Ian Stirling, CEO, ElectraNet, Trevor St Baker, Chairman, ERM Power, Terry Effeney, CEO of ENERGEX, Cameron O’Reilly, executive director of the Energy Retailers Association, Matthew Warren, chief executive of the Clean Energy Council, and Cheryl Catwright, chief executive of the Australian Pipeline Industry Association, among its keynote contributions.

Ten trillion dollars price tag

The International Energy Agency, in its latest assessment of what is needed to deliver decarbonisation, has calculated that there needs to be investment totalling $US10 trillion (or 6.85 billion euros) over 20 years from 2010 to stabilise greenhouse gas emissions in the planetary atmosphere at 450 parts per million.

In this scenario, the IEA foresees the use of fossil fuels peaking in 2020 at jusy six percent higher than in 2007.

The abatement target for this massive outlay is 3.8 billion tonnes of gases, with 1.6 billion tonnes in cuts being achieved in OECD countries and one billion tonnes by China.

The agency says international expenditure on low-carbon power generation will have to reach $US735 billion between now and 2020 – and then rise by another $US3,780 billion in the following 10 years to 2030.

The report expects that a carbon price of $US50 per tonne will be needed by 2020 to deliver such levels of investment.

How yellowcake can help

Michael Angwin, executive director of the Australian Uranium Association,has told the Senate fuels and energy select committee that the body is “extremely disappointed” by the failure of emissions trading reviews and other official decarbonisation inquiries in the past two years to acknowledge the contribution national uranium production can make to global greenhouse gas mitigation.

Australian uranium oxide exports, he said, now amounted to 10,000 tonnes a year and contributed 400 million tonnes of abatement annually. “That is about 70 percent of Australia’s total emissions.”  He said exports over the next 20 years were capable of avoiding 15 billion tonnes of carbon dioxide emissions in total.

There is a strong case for expanding exports, he told the committee, as a key part of Australia’s approach to climate change policy.

NEM ‘strong and flexible’

Michelle Groves, chief executive of the Australian Energy Regulator, says the national power market on the eastern seaboard is “extremely strong and flexible.”  She has told a Senate committee that the AER believes the market framework is “very robust,” making it able to deal with the upcoming challenges of decarbonisation policy.

Groves added that network businesses are talking to the regulator “a lot” about the challenges of dealing with global warming issues – the transmission sector, she said, is probably going to have to deal with a significant change in the pattern of generation.

In the discussions between Groves and members of the Senate select committee on fuel and energy, Senator David Busby (Liberal, Tasmania) said it had been put to the group during a visit to a power station that the electricity connection between Victoria and New South Wales has less capacity than the smallest of the large coal-fired generators and that, if one went offline, its supply could not be replaced in full. Groves responded that the move to establish a national transmission plan would help to address such issues.

New waste coal plant opens

A small new power station, fuelled by waste coal mine gas, can cut Australian emissions by 1.3 million tonnes a year, say owners Energy Developments Limited.

The 45 MW plant, sited at Moranbah North in Queensland’s Bowen basin, is the third EDL operation in Australia to use waste gas – another is the 32 MW German Creek power station nearby, with both sited at Anglo American coal mines, and the third is the 97 MW Appin/Tower plant south of Sydney.

EDL says its is now able to produce 2,800 GWh a year from landfill gas, waste coal gas and other fuels in operations here, in the United States, in mainland Europe and in Britain, delivering some 9.7 million tonnes of greenhouse gas abatement annually.

Investment risks higher

Clean Energy Council chief executive Matthew Warren has told a Senate committee that financing infrastructure has become a serious challenge for generators as decarbonisation policies labour through their development phase.

Previously, he said, large-scale generation developments were considered “pretty safe and dependable investments, attractive to superannuation funds” because of their stability, but this had now changed. Risks in developing coal-fired projects had increased markedly and there were concerns aboutt he price of gas and how carbon charges would affect its viability over 20-30 years.

For proven renewable generation, he added, there are risks of  technological obsolescence and questions over how policies may change in the future.

Ferguson says no FiT

The Federal Resources & Energy Minister, Martin Ferguson, has firmly rejected solar sector pressure for the introduction of a uniform national feed-in tariff.

Speaking to a Clean Energy Council conference in Brisbane, Ferguson resisted lobbying for a FiT, saying they were not the solution some made them out to be. It is the Rudd Government’s view, he added, that the solar debate needed to move on from PV systems on individual household roofs and attention be focussed on large-scale deployment, integrated in to the transmission grid.

The market needed to decide which renewable technologies succeeded, he said. “Picking winners can be expensive and does not always deliver the intended results.”

Ferguson told the CEC forum that the $1.5 billion Government Solar Flagships Program is designed to lay the foundation for utility scale solar power able to operate in the competitive energy market.

He said the Government is waiting on a report by Boston Consulting Group before finalising design of the program.

Government funding of solar power was part of a broader strategy, he added, not a strategy in itself.

Britain faces blackouts

The chief executive of Britain’s energy regulatory agency is warning that the country will face electricity supply problems within four years.

Alistair Buchanan of Ofgem says new European Union pollution rules will require a quarter of the British power plants, fuelled by coal and oil, to close by 2015 and extreme winter weather could lead to blackouts.

A failure to tackle the impending problems has left Britain more vulnerable to electricity supply shocks than any other country in Europe, Buchanan adds, warning that Britons also face “swingeing increases” in their power bills – possibly up to 60 percent – as policymakers struggle to drive major cuts in consumption while encouraging new supply investment.

Ofgem calculates that the power industry will need to invest between 95 billion and 200 billion pounds on new generation capacity, including renewable, gas and nuclear plants, as well as augmenting the high voltage transmission system.

The Energy Intensive Users Group, representing large British manufacturers, has reacted to Ofgem’s concerns by warning that the country is “entering very dangerous territory,” with a material threat emerging to the future of heavy industry.

Road to Copenhagen

The second last stop-over on the path to the UN global warming summit in Denmark was the October inter-governmental meeting in Bangkok – and it ended, reports The Associated Press, with “the United States taking a beating from environmentalists and poor nations for failing to commit to deep emissions cuts and to provide financial aid,” an impossibility for Barack Obama in the absence of Congressional agreement on carbon legislation.  The US Senate, in turn, will not agree to any scheme that is not based on China, India and other fast-industrialising countries making legally-binding commitments to reduce their own emissions.

The Chinese chief negotiator, Yu Qingtai, accused “a couple of countries” of making a concerted effort to sabotage the 2007 agreement in Bali – which was claimed to established a road map to achievement of a new deal in Copenhagen.

One reporter from Canada covering the Thailand meeting, which was attended by 4,000 delegates from 177 countries, said it had resulted in international co-operation on global warming policy “being swept away by a climate of distrust.”  The American chief negotiator at Bangkok acknowledged that a “new adversarial atmosphere” had emerged.

The stand-off led the G-77 plus China development group to accuse the OECD countries of “a lack of seriousness” in pursuit of a new treaty to replace the Kyoto agreement. The G77’s Sudanese chairman, Lumumba Di-Aping, lumped Australia in with the European Union and Japan in “racing America to the bottom” in the talks.

At the Bangkok talks, the US delegation seemed to take a stance for the first time that the Kyoto treaty should be scrapped, arguing that it could not “be stuck with an agreement 20 years old” and calling for “action from all countries.”

Under the present pact, the Kyoto agreement expires in 2012. However, one of the lines of negotiation emerging in the protracted talks suggests that, rather than scrapping the pact, nations agree to expand and extend its provisions for another five or seven years. In the United States, it is thought highly unlikely that the Senate would ratify a reworked Kyoto treaty.

The G77 terms for a new agreement include a commitment by the developed world to send between $US67 billion and $US140 billion to the United Nations every year for distribution to the developing nations to support technological innovation and adaptation programs. Some claim that, beyond 2020, the transfer of wealth may have to reach $US500 billion a year.

President Obama, whose award of the Nobel Prize for Peace as the Thailand conference was ending has raised eyebrows in America and across the world, given he has yet to complete a year in office, will meet the Chinese leader, Hu Jintao, in November, with global warming policy among many issues on their agenda.

The final UN negotiating stop on the road to Copenhagen will be in Barcelona, Spain, in November.


Coolibah’s Keith Orchison now has a blog, entitled PowerLine, on the BusinessSpectator website at


The bizarre nature of the decarbonisation debate in Australia was never more in evidence than in the past month when Malcolm Turnbull was turning himself and the Liberal Party inside out in an effort to match Kevin Rudd’s emissions trading proposals – and the largest electricity generation owner in the country, the New South Wales Government, was putting forward plans to build new fossil-fuelled power stations that will add between five million and 12 million tonnes of carbon dioxide to national greenhouse gases every year.

Both Rudd and Turnbull are committed to Australia pursuing a minimum emissions cut that will require annual abatement of 138 million tonnes of carbon dioxide by 2020 – and the Rees Government in NSW, a strong supporter of emissions trading, is now proposing to make that task so much harder.

It would be mere semantics for the State Government to point to the proposals coming from Delta Electricity and Macquarie Generation. Both are State-owned corporations and, in the midst of Rees seeking to sell the trading rights to their output, are wholly in the thrall of the Government and its Treasury department as they strive to maximise income from the sales.

In essence, what the two generation businesses have said in their initial applications for environmental approval is that only coal-fired or gas-fired power stations can meet the foreshadowed growth in demand for electricity in New South Wales in the second half of the next decade and that the way needs to be cleared for development soon because the projects will require six years or more to be built.

Without them, the Government is being warned, supply shortfalls could occur as soon as 2015-16.

While only one of the developments will be needed to meet new demand, the proposals are structured so that part of one could go ahead in the Upper Hunter Valley while part of another is developed near Lithgow beyond the Blue Mountains. One could be coal-fired and another gas-fired.

The coal options each involve construction of two 1,000 megawatt units, the largest ever built in Australia.  The gas options involve five 400 MW units in one case and six in the other – the largest complex of gas generation so far proposed for anywhere in Australia.

Both applications are clear in rejecting wind power and solar thermal power as options to meet the baseload electricity needs of New South Wales, the largest power consumption region in the country, using a third of annual national production, on the grounds mainly of cost.

Nuclear power is not on the table because the Labor Government in the State is utterly opposed to its use.

The gas options proposed would add some five million tonnes of carbon dioxide to Australian emissions each year and the coal options around 12 million tonnes.

The hard place in which the Rees Government finds itself is that the threats to power supply reliability from failing to embark on new baseload development are already obvious and will become a political factor by the time the embattled administration has to present itself to voters in 2011. The situation is complicated by the privatisation process because it could be well in to 2010 before that is settled and the Government wants the private sector to build the new power stations.

The consultants’ reports that have been submitted in the environmental applications make it clear that the game played by the Carr and Iemma governments to avoid the political stink over new fossil-fuelled developments while maintaining reliability of supply has almost run its course.  Carr’s policy, in effect, was to have the coal plants built in Queensland and to source their output over the new transmission link constructed the State-owned high voltage network business and its Brisbane-based counterpart. The Snowy Mountains scheme and ability to source additional supply from Victoria provided an additional buffer.

But now the consultants are warning that the NSW share of the Snowy’s supply is likely to decline marginally due to management of environmental flows on the river, the contribution from Victoria’s brown coal generators will fall back as supply tightens in the three southern States by 2014 and power supply from Queensland will continue to decline as plants north of the Tweed River are required to meet their home State’s fast-growing demand.

The NSW situation is the more troubled because its rising power demand – the State population is expected to grow by 600,000 in the next decade – is going to require the existing coal-based generators, all owned by the Government, to operate at record levels, a reliability issue for equipment that is reaching the end of its design life, if new stations are not built.  Some of the plants will be 45 years old by the middle of the next decade.

This potentially dangerous supply security issue is not just a problem for New South Wales. The State is home to more than a third of Australia’s manufacturing industry and Sydney provides the regional headquarters for more than 200 global companies.  As was demonstrated by the natural gas pipeline failure in Western Australia a year ago, energy insecurity is a national as well as local economic issue – and a period of electricity unreliability in NSW would be as much a headache in Canberra as it will be in Macquarie Street.

The solution, says the generation businesses (and by extension the Rees Government) is to build big new fossil-fuelled power complexes – at a time when the national debate is fixated on ambitious emissions abatement targets that can only be reached with substantial carbon charges that, in turn, will make the ongoing operations of the older NSW coal-burning power plants problematical.

Perhaps calling this situation bizarre is too mild a word.

Keith Orchison
11 October 2009

Powering Australia

Keith Orchison, Editorial Director of the Powering Australia yearbook, invites you to the official launch of the 2009 publication by the Federal Minister for Resources & Energy, Martin Ferguson, in Brisbane. Click here for the details of the Powering Australia Forum.

Subscribe to Coolibah Commentary by email

| to top of page |