It was a drastic statement. The Latrobe Valley provides more than 90% of Victoria’s power and if Mr McIndoe is right, the state would grind to a halt. Most observers believed the comments were just part of the industry’s frantic lobbying at this crucial time: the Federal Government, following Professor Ross Garnaut’s draft report on Friday, is finalising the details of its carbon scheme, while Climate Change Minister Penny Wong is set to release a green paper next week.
But Mr McIndoe’s warning hints at how much pressure a carbon price will place on Victoria, the state most reliant on dirty brown coal. Although careful to respect the Federal Government’s process, Victorian Energy Minister Peter Batchelor appears increasingly nervous in his public comments. Asked if one of the state’s brown coal generators will be forced to close prematurely, he said: “It depends on the nature of the emissions trading scheme (introduced).”
Under a trading scheme, large polluting companies such as power stations must buy from the Government an ever-decreasing amount of permits to emit carbon dioxide. This cost is passed on to the customer with the idea that carbon-heavy goods and services become more expensive and are used less. In the meantime, if companies find cleaner ways to produce energy and fuel, they benefit from not having to buy permits or from selling them to others.
The scheme will push some of Victoria’s brown coal generators to the wall – even industry accepts that. The questions are when and which ones go first.
Meanwhile, the spin on clean coal is wearing thin. Despite millions of dollars of taxpayer investment, the costs of retrofitting Victoria’s four brown coal power stations with technology to make them cleaner could be so high it might be cheaper to build new ones or convert them to natural gas.
Safely putting carbon back in the ground, a process known as geosequestration, has been widely seen as the biggest test for clean coal technology. But a bigger test for the power stations is actually how to capture the carbon from generators before it is buried.
The size of the infrastructure to capture carbon is enormous and any full retrofit could see a generator out of service for years. While the scientists say it is technically possible, none of the three companies that own brown coal plants have declared it likely to be economically viable.
“The companies would never do it, it would send them broke,” says John Boshier, the executive director of the National Generators Forum, which represents the Latrobe Valley brown coal power plants of Hazelwood, Yallourn, Loy Yang A and Loy Yang B. “I’m an engineer and I can’t see how it can be done, but someone might figure out how to do it.”
Energy Minister Peter Batchelor acknowledges the difficulties, but stands by the $30 million investment in clean coal technology trials designed for retrofitting the 44-year-old Hazelwood plant, the state’s oldest. “There’s no doubt about it – retro-fitting existing power plants is both a difficult and expensive task. But we’ve got to try everything. There’s no silver bullet,” he said.
Last week, the Brumby Government trumpeted a new brown coal plant for Victoria, just three days before the release of Professor Garnaut’s draft report. In his press release, Mr Batchelor said the $750 million Latrobe Valley development, to be built by HRL and Chinese power company Harbin, was a “clean coal” power station – it is 30% better than a normal brown coal plant, but just as polluting as NSW’s black coal plant.
But based on figures provided by the State Government to The Sunday Age, a rough calculation shows that the plant will emit 72 million tonnes of carbon dioxide over its 30-year life. This would almost negate the expected annual pollution savings of the Victorian Energy Efficiency Scheme, designed to cut energy use in homes by 10% by 2010.
The Victorian announcement caused grumblings of displeasure around the offices of the Garnaut Review, but the professor himself is not too concerned. The reason is that the new coal-fired power station will be able to substitute gas for coal, thereby reducing its emissions, and will be designed to take on capture and storage technology when it becomes economically feasible. “It is appropriate that coal-based power generation be prepared for capture of carbon dioxide as soon as possible,” he told The Sunday Age yesterday.
If emissions trading comes in at 2010, as planned, and clean coal is not considered viable until 2020 or 2025, Victoria’s brown coal generators face an uncertain 10 years.
Brown coal electricity produces more carbon than any other fossil fuel because it has a high water content and is inefficient to burn. Until now it has been one of the cheapest ways to make electricity and this bargain power has underpinned the state’s manufacturing sector. But because it produces more carbon, the companies that own the generators – TRUenergy, International Power and AGL – must, under the emissions trading scheme, buy more permits, which pushes up their costs. Most of this cost will be passed on to consumers on their electricity bills.
Even if the Government initially sets a low price, between $20 to $30 a tonne of carbon is mooted, brown coal electricity starts to become uncompetitive with black coal, which can be imported on the national electricity market from NSW. Also, at low carbon prices, brown coal starts to become more expensive than gas. Natural gas, a much cleaner fossil fuel, has generally been used in Victoria to cover peak demand. But a carbon price would push these gas plants into full production.
As the carbon price rises to between $30 and $40 generators may shut down some parts of their plant and cut back on maintenance, further stressing the bottom line. At this point one of Victoria’s two dirtiest power stations – Hazelwood and Yallourn – could be pushed to their economic limit. “There is no doubt the older plants are less able to be retrofitted and adjust to a world where they have to ramp up and down,” says Paul Johnston, CommSec senior utilities analyst.
When the carbon price hits $50 to $60, renewable energy such as wind will start to become competitive and the clean coal technologies appear more attractive. It may also become economic at this point to start replacing coal with gas entirely.
There is an upside for brown coal, however. As it is traded on the international market, gas prices are likely to rise sharply at some stage – meaning that, for a time, the remaining brown coal stations will be on an even keel price-wise with natural gas.
Then, as the Federal Government further restricts pollution permits, the carbon price is expected to rise again, making expensive energy sources, such as big solar thermal plants, more economical. But it is difficult to estimate the timing of these carbon price levels without knowing how quickly the Government will want to cut greenhouse gases and how the carbon price and the energy market will react over decades.
For his part, Professor Garnaut believes the generators’ modelling that predicts early shut-downs is flawed. He told The Sunday Age yesterday that the companies, at least in the early stages of carbon trading, were in a reasonable position because of the rising costs of their gas and black coal competitors. The costs of building new power stations were rising so quickly that retrofitting would become more commercially viable, he said.
In his report, Professor Garnaut said $1 billion to $2 billion of the emissions trading scheme proceeds should be invested in clean coal technologies, matched dollar for dollar by the companies. If clean coal worked, he said, the Latrobe Valley would heave a “prosperous and expansive future”. If it didn’t, money from the scheme should be used to help retrain workers and to help the valley community survive the brave new world of zero emissions.
