Queensland flirts with a capacity catastrophe

One MP's push for additional baseload power in his electorate highlights how a blinkered view of the National Electricity Market can lead to more pain than gain.

Queensland is in the grips of an electricity dilemma that has been reported and commented extensively on Climate Spectator many times including, but not limited to here and here.

Recently and perhaps worryingly for Queensland taxpayers is that in addition to Energy Minister Mark McArdle’s and the Queensland Government’s misunderstanding of how energy markets work, we are now starting to get some support federally for projects that if they go ahead risk costing Queensland taxpayers millions of dollars. 

Enter Federal Member for Herbert, Ewen Jones, calling for a brand new coal-fired power station in North Queensland (see the full story here).

For those of you struggling to put the problems facing the National Electricity Market in Queensland into some sort of context, my grandad had a saying when I was growing up and that was that “if you find yourself in a hole… stop digging". But I am sure that if he were alive today he would add to that analogy by saying “if you are struggling with overcapacity in your electricity market… then a new coal-fired power station in Townsville will almost certainly not help”.

To give you some perspective on the problems that Queensland faces in managing its infrastructure in the most distributed network in the Western world and more of the background detail supporting the some of the points I make below, don’t take my word for it, have a listen to the interview we did on renewables radio with Ergon chief executive Ian McLeod who actually manages the poles and wires in regional Queensland.

But to highlight some of the thinking behind the need for this additional baseload capacity, apparently with a centre of excellence for emission control based on algae technology, I asked Ewen Jones and he said:

“Sun Metals (located in Townsville) is the second largest user of electricity in the state of Queensland. They pay for not only the power they use, but for the power that is lost in transmission from Gladstone (900km away). The largest user of electricity in Queensland is the Gladstone Aluminium Refinery which sits right next door to the power station. The savings they make are significant.”

Some of you may well say “well done, Ewen” fighting for your region and presenting a business case that may very well exist if you look at an electricity market simply from the confines of your electoral boundary. Unfortunately the Australian Energy Market Operator, Ergon and the Queensland  Government who are all responsible for power related infrastructure do not have this luxury.

The problem that they face here is not unique to Queensland and that is: how do you solve an overcapacity problem by building more capacity?

The answer as confirmed by Ergon chief McLeod is: you can’t. (Go to the 13-minute mark of the interview if you don’t have time to listen to the whole thing.)

I was also very interested to find out what Jones thought the effect this new development would have on the cost of energy for Queensland residents and he said:

"Establishing the power station in Townsville would not affect the cost of electricity to households but it would save the State Government a great deal of money. Currently, the State Government pays over $600 million in subsidies so that people in Townsville and Cairns pay the same rate as those in the southeast corner for their power. Establishing a power station in Townsville would alleviate a great deal of that cost."

And it is in that first sentence where the whole business case for this project starts to unravel very quickly indeed.

The problem that the NEM in Queensland faces is that assets are being stranded or operating at under capacity left, right and centre. Already, major power stations such as Tarong, Callide C and Stanwell are operating at 30 per cent, 45 per cent and 65 per cent respectively but the important thing to bear in mind here is that demand is still falling and goodness only knows what this would look like in 2020 when this power station comes online.

One of the problems with viewing an electricity market from the borders of your electorate is that you can at times lose sight of the big picture and inadvertently slug the taxpayers of your state with a bill they did not need to pay. If you were to go ahead with this plant in Townsville what you would be doing is spending about $700 million (depending on the size of the plant they go for, no details of this have been released yet) to effectively write off another $700 million worth of generation capacity in central Queensland that in most cases is unfortunately government-owned.

What will happen in reality is that Queensland taxpayers will take a monumental writedown to their assets and we are already seeing large chunks of coal generation infrastructure getting stranding and becoming unprofitable. Add to this the gas assets of Stanwell (Queensland Government-owned) that are going to get stranded due to the higher cost of gas, falling demand and the repeal of the carbon tax. 

So when you shine even so much as a flicker of light on this proposal you can see that Jones statement that this “would not affect the cost of electricity to households but it would save the State Government a great deal of money” is actually a lot further from reality than he might realise.

If you look going forward at the risks by 2020 that this new coal plant would be facing, they are competition from the decreasing cost of solar and storage along with other solar thermal technologies, pricing of carbon over the 30-40 years the plant will be operating and the global demand for the minerals you are processing.

Because the lesson that is not being learned here and was certainly touched on by McLeod in the interview, was that you must manage and maximise the productivity of energy infrastructure - as he has been trying to do in Queensland recently with projects like Magnetic Island which used solar to avoid the need to build an underground sea cable.

Regardless of whether you are dealing with transmission or generation assets if you get it right you will save billions and if you get it wrong it will cost you billions. Which is exactly what is likely to happen if this new plant baseload coal plant goes ahead in a marketplace that is struggling to deal with overcapacity.

The reality is that it won’t even get built without a significant government subsidy or taxpayer handout not to mention the certain writedown of other government assets in the central part of the state.

While I know that this project is still the subject of a feasibility study (no release date confirmed) being conducted by Townsville Enterprise and while I, too, would not want to pre-empt what the study might show, as long as both conservative governments at a state and federal level keep their promise to end corporate welfare then everyone on Climate Spectator can put their placards down and head to Abbot Point, the bankers will stop this one.

In part two of this article to be published next week, I will look at what the cleaner and, in the longer term, cheaper options for managing this industrial capacity might be given the five to seven-year timeframe it would take for this baseload station to come online in the year 2020.

Matt Grantham is a radio presenter, political comedian and renewable energy advocate.