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July 7, 2013
The fossil fuel industry has a troubled future. It is constrained by political decisions to limit emissions, declining demand and by the lack of, or the high cost, of finance.
In a carbon constrained world-, where the commonwealth has acted to reduce the emissions from the power stations through carbon pricing, state governments in Australia (Queensland, WA and NSW ) are finding it increasingly uneconomic to protect their existing fossil fuel assets, such as their coal-fired power stations through various kinds of subsidies to the coal-based generators.
For instance, in NSW the coal-fired power stations were unable to compete with other power sources unless their coal was supplied at around one quarter of the cost of export coal. So the state Labor government started to build a new coal mine--- the Cobbora coal mine near Dubbo ----and ship the subsidised commodity to the state’s black coal generators so they could have cheap black coal. The new Liberal NSW government has decided to cut its losses and dump Cobbora.
WA invested $250 million into a failed attempt to upgrade the ageing and dirty Muja power station, and the plan is now abandoned and the money lost. Successive Victorian governments entered into controversial deals to extend and protect the life of the ageing brown coal generators in the Latrobe Valley.
The economic reality facing the fossil fuel industry is that electricity from unsubsidised renewable energy will soon be cheaper than electricity from new-build coal and gas-fired power stations in Australia.The assumption that fossil fuels are cheap and renewables are expensive is looking to be out of date. The energy future is that the Australian economy is likely to be increasingly powered by renewable energy and that investment in new fossil-fuel power generation may be limited because they will be too expensive.
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Our coal-fired plants are old and inefficient. Most of the coal fleet was built between the mid-1960s and the mid-1980s and are stuck with old technology.
Even though the average coal-fired power plant has long since recovered its initial capital costs, in order to remain in service and competitive, most coal-fired plants will require expensive refits. This is proving to be uneconomic for some.
It looks as if the fossil fuel plants in the future will have to operate for fewer hours and at much lower levels of average capacity. But coal plants are not well suited to act as peaking plants backing up wind and solar generation. Gas-fired plants are more effective.