Energy security and affordability debate heats up

Key Points:

• Political debate over future coal use has intensified following blackouts in South Australia and threats to electricity system reliability from increased intermittent renewable energy
• PM Turnbull is promoting high-efficiency, low-emission (HELE) coal power technology
• Hazelwood power station in Victoria is closing soon, potentially increasing the risk of power outages across three states
• Brown coal power stations need pre-drying technologies before they can use HELE technology
• ECT’s Coldry technology is the gateway to HELE adoption in Victoria

There has been a great deal of media comment on high-efficiency, low-emissions (HELE) electricity generation recently.

This has created an opportunity to talk about our Coldry technology as part of an appropriate solution for brown coal-based power in Victoria.

To understand the opportunity requires some background on our energy market situation.

For those who haven’t followed the discussion the debate has been sparked by energy security and affordability concerns following the significant spot price spikes and rolling blackouts experienced in South Australia and the impending closure of Hazelwood power station in Victoria.

Prime Minister, Malcolm Turnbull has questioned renewable energy targets while calling for high efficiency, low emission coal-fired power stations and additional gas exploration to shore up reliable baseload power.

The Australian newspaper touts it as the ‘return of coal’.

There is no question that energy affordability is paramount to household and business budgets. Then there’s the economic cost to business of shutdowns caused by blackouts. The National Electricity Market (NEM) is tasked with maintaining 99.998% uptime, which means downtime of only 11 minutes a year.

This represents an opportunity for our Coldry technology. An opportunity to highlight the impact we could bring to bear in significantly reducing the CO₂ intensity of Victoria’s brown coal-reliant power stations while supporting reliability and affordability.

The AEMO, our national energy market regulator, has highlighted the risk if peak demand conditions coincide with low wind availability, or generation or transmission outages.

Analysis by the Australian Energy Council on what this means for pricing indicates a high level of uncertainty with estimates ranging from ‘little impact’ through to a 42% increase. Fortunately, there is a recent example of market adjustment to the closure of base load power in South Australia where power prices jumped 36% from $66 to $90 per MWh in two months.

The debate playing out across the media is understandably black coal-centric, given the value of both the coal export market and the fact that black coal generates around 43% of Australia’s power.

Some of the media commentary (links below) cite the ability of power station technology known as ‘ultra-supercritical’ (USC) to deliver CO₂ cuts of between 27% and 34% compared to business-as-usual.

Business-as-usual for black coal power stations is around 0.9 tonnes of CO₂ per MWh, so based on the quoted figures, USC would bring that down to the range of 0.6 to 0.66 tonnes per MWh. Most USC figures we’ve seen quote about 0.75t/MWh.

The articles go on to highlight that USC power stations can be built and operated at a lower cost per megawatt hour (MWh) than wind and solar, delivering a lower cost per tonne of CO₂ saved. The Minerals Council of Australia says there are more than 725 HELE plants operating across East Asia right now with a further 1,100 under construction or in the pipeline. This contradicts claims by certain interest groups that wind is cheaper than coal and that no-one is financing coal power.

The International Energy Agency (IEA) notes that China will increase its coal-based generation capacity by 20% by 2020 while adding 3% renewable capacity to its energy mix.

But what does this mean for brown coal (lignite)?

Before we answer that, it’s important to understand that whilst brown coal is not an export powerhouse for Australia like black coal, it is a major part of our energy mix, and generates electricity at lower cost than any other source.

Brown coal key stats include:

• Capacity: 13% of Australia’s and 85% of Victoria’s installed capacity
• Electricity production: 27% of Australia’s and 86% of Victoria’s
• CO₂ emissions: around 35% of Australia’s emissions from electricity generation and 12% of total emissions
• ‘Wholesale’ reference price (2016): AEMO reports Victoria’s regional price of $46 per MWh compares well to NSW ($52), Qld ($60), SA ($62) and Tas ($102).

The two key takeaways from those numbers are:

1. Brown coal only accounts for 13% of the nation’s capacity, yet it punches above its weight, supplying 20% of Australia’s electricity, thanks to its lower cost.
2. That 20% of production generates 35% of the power sectors CO₂ emissions due to brown coals high moisture content.

Brown coal is abundant and cheap to mine, but its high moisture makes it inefficient to burn and therefore CO₂ intensive.

The ‘extreme green’ view is ‘no coal is good coal’. The ‘pragmatic green’ view realises sustainability measures need to be both economically and environmentally sustainable; They also recognise coal will continue to be part of the world's energy mix for decades to come. In understanding the balance between economic sustainability, energy security and environmental sustainability, the role of technology in minimising CO₂ intensity as we transition to a low or zero-emission future, becomes apparent.

The Greens begrudgingly accept that USC technology may, in fact, play out in the states of New South Wales and Queensland, yet assume that USC is not an option for Victoria. This view is understandable but mistaken. Here’s why.

USC technology runs on black coal with low moisture and high energy content and can, therefore, achieve the high temperatures needed to achieve ultra-supercritical operating conditions. Brown coal in Victoria contains 60% moisture, has a low net energy content and lower combustion temperature. It can’t produce enough heat in its wet, as-mined form to feed ultra-supercritical boilers. As such, it needs to be dried first.

The Greens believe this is a showstopper. In the past, they’d have been correct.

Former Victorian Energy Minister Theo Theophanous has been vocal on the topic. His opinion piece in Melbourne’s Herald Sun on 13 February titled Rival interests use fear as the key weapon to sell their case in our energy wars notes that “Two (clean coal) technologies are proposed. The first is ultra-supercritical technology to ensure coal is burnt more efficiently, reducing emissions by about 20 per cent and even more if coupled with pre-drying technology.

“The second involves carbon capture and storage, where carbon is captured before it is released into the atmosphere, and various methods are used to store it.… we may be able to retrofit a number of existing coal-fired power stations that we think will be around for the next 20-plus years with USC technology, reducing their emissions by 20 to 30 percent. That initiative in Victoria could save as much as 1000 wind turbines.”

The key phrase there is ‘pre-drying technology’.

Drying is easy. Drying efficiently and cost-effectively has proved highly elusive. The ‘holy grail’ of brown coal R&D for decades has been to find a cost-effective drying solution. The approach always involved energy-intensive methods that employed high temperature, high pressure, or both. Most created a waste water clean-up issue too. The energy and cost proved to be a zero or negative sum game. The energy input required to ‘heat and squeeze’ the coal was more than the uplift in the energy value of the finished product.

Our Coldry process is different.

Coldry is a low temperature, low-pressure solution with the potential to cost-effectively deliver a ‘black coal equivalent’ product suitable for use in HELE power stations such as USC.

With the impending removal of Hazelwood Power station from the generating mix and the inevitable increases in the cost of supply of electricity, it is important to understand the options available. USC is on the table for Victoria, thanks to Coldry.

If deployed in Victoria, a new Coldry-enabled USC power station could reduce CO₂ intensity by 43% to 62% per MWh compared to business-as-usual.

A retrofit to Hazelwood power station could see a 30%-plus reduction in CO₂.

Business columnist for the Herald-Sun, Terry McCrann commented in an article on 14 February “The State Government must take over the Hazelwood power station and keep it operating.

That is quite simply the only way we are going to keep the lights on not just in Victoria but also South Australia.”

With this in mind, we reviewed a report we authored in late 2010, comparing the cost of replacement generation scenarios for the of the Hazelwood power station.

Our report provided an alternative view to a proposal from a local activist organisation at the time which touted a combination of wind generation and combined cycle natural gas generation (to provide base load availability when the wind isn’t blowing).

Using methodologies developed by highly regarded consulting firm ACIL Tasman, we added economic comparisons, including a high-efficiency ultra-super critical steam plant using a dried lignite based fuel (i.e. Coldry pellets).

In that report, which we’ve recently revisited in the light of current interest, the key metrics of generation cost and cost per tonne of CO₂ emissions avoided made it clear that the Coldry-enabled solution was superior, while still achieving significant total emissions reductions.

Late 2010; Comparison table of replacement options for Hazelwood generation capacity

	Business as Usual	Activist Proposal (Wind turbines with NatGas backup)	Coldry + USC Solution	All Wind (Reference Only)
Generation Cost of Power ($/MWh)	$36.9 Base reference	$77.7 +111%	$44.4 +20%	$95.9 +160%
CO2 Intensity (t/MWh)	1.53	0.27	0.75	0
CO2 Emitted (mt/y)	18.0	3.1 -83%	8.8 -51%	0 -100%
CO2 Mitigation Cost ($/t CO2)	n/a	$32.3	$9.6	$38.6

Note: Cost of Generation includes allocation for Capital (depreciation and finance), Fixed & Variable operations and maintenance, as well as fuel cost

However, the world has moved along in the interim.

Wind generation capital costs have reduced as the technology progresses along its development curve, as has the cost of the Coldry technology. The price of natural gas has also significantly increased in terms of its long-term average.

Accounting for a 20% reduction in capital for wind generation, and the near halving of the estimated capital costs associated with the Coldry plant, and the escalation of the natural gas price to $9/GJ (expected by year end 2017), the picture today looks different. The most appropriate outcome hasn’t changed, but the financial arguments have shifted.

2017; Updated comparison table of replacement options for Hazelwood generation capacity

	Business as Usual	Activist Proposal (Wind turbines with NatGas backup)	Coldry + USC Solution	All Wind (Reference Only)
Generation Cost of Power ($/MWh)	$36.9 Base reference	$83.0 +125%	$42.2 +14%	$77.4 +110%
CO2 Intensity (t/MWh)	1.53	0.27	0.75	0
CO2 Emitted (mt/y)	18.0	3.1 -83%	8.8 -51%	0 -100%
CO2 Mitigation Cost ($/t CO2)	n/a	$36.5	$6.8	$26.5

Before readers get excited about the prospect of an “All Wind” solution, it should be noted that there are limitations with the technical and financial modelling. The capital estimates for wind omit the required grid connection cost for this geographically disparate generation source. This can add one-third to the total cost.

Reliance on wind generation leaves consumers exposed to outages when the weather is not supportive.

Australia needs to reduce its emissions intensity.

But it also needs to be practical, ensuring least-cost abatement solutions are implemented while keeping the lights on so we can afford to bridge the gap between today’s higher cost, lower reliability renewables and a lower emissions future.

Coldry+USC is that practical solution.

Report Reference:

AEMO Insights November 2016 – Market Insight Report – Victoria’s supply Outlook - https://aemo.com.au/-/media/Files/Media_Centre/Insights/AEMO-Market-Insight-Report-Victorias-supply-outlook031116.pdf