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problems in the energy industry « Previous | |Next »
November 13, 2008

Keith Orchison had a good article in The Australian recently on the problems faced by the coal-fired electricity energy industry in Australia. He says that:

the industry, the most critical element in Australia's 21st century economic supply chain, is grappling not only the fall-out from the global credit crunch but also a three-pronged local challenge of surging consumption, ageing asset replacement needs and policy moves to reduce its greenhouse gas footprint from current levels. [It is a critical element] because 92 per cent of electricity in Australia is generated using brown and black coal versus only 30 per cent in the EU, which is a large user of nuclear power.

Orchison's op-ed speaks from the perspective of the coal-fired electricity industry as it ends by saying that rushing ahead with a carbon policy that succeeds only in disadvantaging the domestic economy because other nations won't follow this path could create an enormous backlash for Kevin Rudd. However, Orchison's piece is good on analysing the problems faced by the industry, the need to modernize its infrastructure and the costs of doing so. It is well researched and provides a platform to step forward.

The first problem mentioned by Orchison is the increase in consumer demand for electricity:

The Australian Bureau of Agricultural & Resource Economics has predicted that national demand for electricity, which has risen six-fold since 1965, will go up 90 per cent between now and 2030. This increase in demand will require billions of dollars to be outlayed on extra supply infrastructure, not only for power stations, but also transmission systems and distribution networks.

Isn't an increase in demand good news for an industry in a capitalist economy? It means growth and profit through capital investment to increase supply to meet demand. Isn't this opportunity for the industry?

The second problem is the ageing of infrastructure one. Orchison says:

Engineers Australia, the professional voice of the discipline, is warning that the country faces an additional problem: the ageing of generation plants. EA believes there has been substantial under-investment in generation capacity and Australia is now "reliant on relatively large, ageing plants" Engineers Australia points, in particular, to ongoing surges in peak demand. The peak load requirements in NSW, the ACT, Victoria and Queensland -- home to 80 per cent of national power consumption -- will be a third higher in 2016 than in 2006.

Firstly, the companies that bought the assets in the 1990s knew they were buying ageing generation plants. Secondly, solar panels on house roofs with feed-in tariffs helps to address the peak demand problem.

Orchison says that the third problem faced by the coal-fired electricity industry is that:

the capital spending needed, and the flow-on of costs to electricity bills, does not stop at the power station gate: half the costs of supply are caught up in the web of pylons, poles, wires, sub-stations and transformers that carried electricity to consumers. Supply cannot serve community needs without network reliability -- which is only as good as its weakest link -- and billions of dollars of assets have been, and will continue to be, built for use only in extreme weather when loads peak.

The grid can be decentralized with regional hubs in a national system. Why cannot Eyre Peninsula in SA generate its own power from wind, instead of relying on power from Victoria?

Orchard says that the fourth problem is that:

both government-owned and investor-owned generators are wrestling with how to deal with the core element of the plan: driving them away from burning coal and to using natural gas or coal seam gas and renewable energy. The coal-fired electricity industry claims that just building conventional plant to meet growing demand will cost it about $13 billion in the next 10-12 years, while constructing low-emission power stations to replace the older coal burners initially stranded by carbon charges could push this up to $33 billion.

Well, they have known about that for a decade or more. Why aren't they doing it now? It would be economically rational to do so.

The fifth problem Orchison mentions is that meeting:

the Rudd Government's renewable energy target -- intended to deliver a fifth of the nation's electricity needs by 2020 -- will be expensive. Estimates of $27 billion to $35 billion are being put forward for investment in wind farms and other forms of renewable generation between now and 2020 to meet the target.This will require a big outlay on transmission networks since the new technologies will require the plants to be sited far from the existing grid and will need major changes in network links.The coal-fired electricity Industry estimates set the price tag from now to 2020 at about $4.5 billion.

Isn't that what infrastructure spending is supposed to do--- to build the required transmission networks to enable the shift to a lower carbon economy?

| Posted by Gary Sauer-Thompson at 7:07 AM | | Comments (2)


Time to get off our behinds and start generating sustainable energy in a big way isn't it?
I've just got back from Spain and its blatantly obvious that the Spanish are investing heaps in solar and wind generating,solar panels and wind turbines abound. And this in a country whose natural potential for such is probably less than ours.

So Australia will be disadvantaged if we get rid of our coal power stations. Didn't Europe used to get much of it's power from coal power stations? Perhaps if I could understand how converting from coal to nuclear disadvantaged Europe at the time, I could understand why doing something similar would disadvantage Australia now.

Surely, in terms of replacing coal with something else (hopefully renewable, rather than nuclear), we are talking about short term capital expenditure and long term reductions in operating costs. I have a lot of trouble understanding how this disadvantages Australia under any circumstances, but particularly now when interest rates are going down.