Where does competitive advantage lie for remote baseload?

The need for a competitive source of baseload power for North Queensland throws up a surprising solution.

Following on from my previous two articles available here and here looking at the proposed new coal-fired power station as called for by Member for Herbert, Ewen Jones and reported in the Townsville Bulletin here I have decided to address the question of electricity productivity and long term competitive advantage for this proposed industrial capacity.

This article will focus on assessing the three options available; coal-fired power with algae carbon capture, PV and cheap grid at night and solar thermal with storage as has been deployed in America and Europe but not yet in sunny North Queensland.

Before getting too excited about any of these options going forward it is important to state again, as I did in yesterday’s article, that Queensland at present is currently facing an oversupply issue with regards to electricity and so all of these options below would need to be used by the Australian Energy Market Operator as part of a direct action-type plan to clean up the grid in addition to establishing this industrial capacity.

The context for this article actually comes from an email exchange that I had with MP Ewen Jones when I asked him about the oversupply issue currently in the National Electricity Market in Queensland and he said:

If there is an oversupply of electricity at present, it does not alter the basic fact that we will not see heavy manufacturing in the north of Australia without competitive base load power. If we are to continue to charge commercial users for the transmission losses from Gladstone, no one will set up shop here no matter the logistical arguments regarding the proximity to resources or trading partners.

And I have to say he is absolutely right about this, unless this issue is addressed and the region is earmarked strategically for cheap low carbon industrial baseload electricity it simply will not attract the sorts of refining projects that its local politicians desire.

Even if we are distorting the market so that a particular region or electorate can develop a heavy industrial zone at the expense of all other electricity users and taxpayers the crucial factor to determining its competitive advantage is its Levelised Energy Cost (LCOE) in a carbon constrained world. Which, as confirmed by Ergon chief executive Ian McLeod in our interview with him, is about a third to a half the retail rate (estimated to be about 10-12c per kWh in 2020) depending on what individual contracts are negotiated.

A key element of this new plant’s competitive advantage lies in its ability to limit its carbon emissions as MP Ewen Jones stated to me in his correspondence where he said it would need to: ”be able to produce base load power with as close to zero emissions as is humanly possible”.

Once again I agree with the economic not just the environmental argument that Jones has stated, not because I think it represents some sort of opportunistic tokenism or greenwash but because the long-term market fundamentals dictate that it must be addressed for the 30-40 year lifetime of the new plant.

When you are dealing with heavy industrial users without taking this into account, what you are asking them to do is bet their as yet unbuilt infrastructure that the world will not act to curb emissions. What will happen in reality is that without a guaranteed cheap low-carbon electricity supply over 40 years they will view the investment decision as too risky, not establish themselves in the region and defeat the whole purpose of building the plant in the first place.

Which brings us to the competitive advantage of each of the options.

Coal with algae carbon capture (and Centre for Excellence for Emission Control)  

If we look at what is being proposed, its whole ability to compete in a low-carbon electricity productivity sense is effectively betting the house that this algae carbon capture system and Centre of Excellence for Emission Control will be able to do “what it says on the can” cost competitively.

A quick phone call to the media person at MBD the company mentioned indicated that their technology, while it showed some promising developments after being retrofitted to the Tarong plant, “was not ready for industrial application” and they did not have any data on what it would do to the LCOE for the plant.

It is also relevant to look at MBD’s website as they are in fact not really looking to store the carbon in a lot of their applications and are trying to generate feed stock and transport fuels so, depending on the application in a lot of cases, they would not be storing the carbon any way. While potentially good from a carbon-intensity point of view, in terms of getting a second bite of the cherry, it still unfortunately represents a carbon liability for the plant.

With regards to the international competitiveness of the plant and the ability we have to help other nations reduce their emissions, Jones said:

"The central premise of my article was the establishment of a Centre of Excellence which could provide the IP to export to countries who do have thermal coal and cheap labour, and will want to develop coal fired power stations."

This is certainly another valid point to raise because as part of any assessment of competitive advantage the threat of cheap low-cost power from overseas is as relevant as the threat from Gladstone when establishing this new capacity. He cited Indonesia, Vietnam, Thailand, and Malaysia as examples.     

The good bit of news is that while governments may try to fund these sorts of projects internally and take a punt on the global carbon price, the World Bank won’t along with HSBC and a host of other financial institutions who have worked out they risk losing their collectively well pressed shirts.    

So the risk associated with pursuing this course of action is that it is not ready for industrial use and we have no idea what it would cost. Not being able to guarantee low-carbon intensity energy going forward creates the sort of investment climate that large industrial refiners would at the very least find unfavourable and until that is resolved they risk stranding their assets in an uncompetitive electricity market.

PV with off-peak grid power

As discussed in yesterday’s article this is likely to be the cheaper slightly cleaner option in the short to medium term but would still face some serious headwinds to make this industrial capacity economically viable.

One good thing about Townsville is its reliable sunshine and fairly consistent length of day, so if the refining industry were able to innovate with regards to storage and just using a daytime load it may be an option given it is proximity to both the minerals and a port. But I doubt that given the ramp-up and down times for this sort of minerals processing it would not be very likely to be economically viable without a lot of internal innovation on the part of the refineries.

So even with a Levelised Cost of Energy of 6c per kWh for daytime capacity this option is unlikely to provide the certainty of a long term, sustainable competitive advantage for industrial energy users in the region.

Concentrated solar thermal with storage

This technology while expensive at the moment is tipped, if the CSIRO is right, to hit 12c per kWh and as low as 6c per kWh if the US Department of Energy is right by as early as 2020. If these predictions are right then it will not be very long before, based on simple economics, projects like this really start to stack up financially in a reliably sunny place like North Queensland.

If Jones is in a hurry to get this low-carbon industrial capacity built and attract the associated heavy users to the region ironically it is this technology that almost certainly represents the best chance at doing it. If he could set up a business group who partnered with the US Department of Energy and helped to hasten the cost curve reductions of this technology to baseload levels then a region like North Queensland with its good solar resource and available land adjacent to refineries becomes very attractive indeed.

Even if you ignore all of the local jobs created, stimulation of local manufacturing and the intellectual property that you would generate, the thing you do most importantly of all is take carbon price uncertainty off the table for companies making infrastructure investment decisions that will last 40 years.

When looking at the long term energy competitiveness for this industrial load and you contrast concentrated solar thermal and storage with the reality of building a new coal generator with an experimental carbon capture system, what you would do is actually threaten the region with a 35-year period of disadvantage rather than helping it.

After all, who would not want to invest in the region with no carbon risk, located next to the minerals with port access that exists on Asia’s doorstep. Now that would be a competitive advantage.

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

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