Reliability issues aside, in the debate over the flawed Finkel report a vexed issue is that of costs of coal versus wind/large scale solar. Queensland’s Kogan Creek coal plant commissioned 10 years ago was offering long term baseload contracts at $38 per MWh. But the Australian Research Council had new coal at $80 per MWh.
Australian Research Council estimates of coal generating plant costs
The ARC CO2 assessment placed coal as gradually diminishing in competitiveness as illustrated below. This also assumed the ever-familiar coming reduction in wind and solar with no change in coal power station efficiencies and an unjustifiably stiff premium for new build. On the estimates below, wind and solar are cheaper than coal so why do they need subsidies?
Australian Research Council estimates of generator costs
AEMO’s data has a new black coal power station on the Queensland Sunshine Coast requiring a capital cost of $3131 per kw. (Latrobe Valley brown coal capital costs are put at $4004 per kw). These sums are in excess of those incurred elsewhere. Thus Power Engineering addresses three black coal plants in Vietnam with Australian dollar costs of between 4 and 40 per cent cheaper ($2240 – $3020 per kw). .
It is implausible that new brown field coal generators in Australia could have doubled in cost since Kogan Creek was commissioned in 2007. Since 2005 we have seen labour costs for operations and construction increase by 50 per cent. Labour costs might account for some 30 per cent of the construction outlays.
Other costs have shown no such increase. Coal costs are similar to 2007 levels. And most input costs have fallen – the structural steel price in US dollars actually halved.
Compared with other estimates of coal generator costs, the Jacobs 2014 data was rather more realistic, putting costs of new entry coal ranging from around $60 per MWh. Jacobs which did the modelling for Finkel, put the black coal costs in NSW and Queensland in a report in 2014 respectively at $6.3 and $5.2 per MWh.
Jacobs (2014) estimates of new coal and gas plant costs
A Minerals Council report based on a visit to examine German new brown coal developments concluded a new Latrobe Valley brown coal power station could be deliver electricity at a price of $55-65 per MWh. And this might be conservative given the low cost of Victorian coal.
The Jacobs work for the Finkel report put far higher costs for new coal power stations, as well as some remarkable wind and solar costs at around $50 per MWh.
Jacobs (Finkel report) cost estimates of new generation
This modelling assumes a pariah nature of coal generation would require a weighted cost of capital (WACC) at 14.9 percent compared with 7.1 per cent for wind (AEMO puts the WACC at 12.9 per cent for coal and 7.1 per cent for wind). If capital was available at 7 per cent, a black coal plant based on Jacobs 2014 estimates would be as follows:
Costs of new black coal plant in Australia
|Black Coal New Plant|
|Capital Cost $/kW||Fuel Cost||Finance costs||LRMC $/MWh|
Impediments to building new coal are twofold. First, there are now many radicalised people bent on opposing any form of coal use and willing to aggressively picket new projects, thereby imposing costs on them. If governments are unwilling to combat this and to allow legal activities to proceed unhindered then there is little hope of the economy achieving its potential in wealth creation. Pusillanimity by government in upholding the law should not be an option.
The second problem is that government activity in energy policy has created “sovereign risk” by regulatory favours to coal’s competitor and introducing a discriminatory tax on coal plus, as in Victoria, governments will often seek to exploit sunk investment by raising royalties
Government induced uncertainties on policy actions have reached a point where any new generator would need to have a contractual indemnification against government for any expropriatory measures introduced.
Post script. Trump forces re-write of communique for upcoming G20, removing
- A call for “the alignment of public expenditure and infrastructure planning with the goals of the Paris Agreement”
- A push for carbon pricing
- A commitment to publish mid-century decarbonisation blueprints by next year
- A pledge to develop a “profound” climate plan for multilateral development banks
- Seven references to the UN’s 2018 review of nationally-determined contributions
- 11 references to the 2050 mid-century pathway for net zero emission
- 16 mentions of infrastructure decarbonisation