Weekend Australian
Saturday 9/9/2006, Page: 1
Australia faces a tough battle on environmental concerns over coal use and the rising price of natural gas in its efforts to achieve efficiencies in generating electricity, writes
GENERATING electricity is Australia's most capital intensive industry. Steve Boulton of Babcock and Brown Infrastructure estimates that it takes $6 in investment to generate $1 in revenues.
The Energy Supply Association of Australia - representing more than 45 electricity and downstream gas businesses, employing more than 40,000 people and contributing $12.4 billion to the nation's gross domestic product - says the industry has around $110 billion in assets and requires new investment of more than $30 billion in the next 13 years.
That is a huge challenge for Australia.
Electricity consumption has grown by around 50 per cent in the past 15 years but the level of investment has not kept up.
Until the past decade, electricity generation was generally the responsibility of state governments which had consolidated the industry within state boundaries over a period which pre-dated Federation.
But under the pressure of macro-economic reform and the stimulation of national competition policy developed by the Hawke/Keating Federal Government in the 1990s, the electricity industry has been transformed.
The latest iteration of change is occurring in Queensland where, in a remarkable change of mind, the government has decided to sell off its energy retailing operations.
Queensland already has a unique mix of public and private ownership of its generation assets, a mix that may gradually occur in NSW
and Western Australia, both of which have resisted to a greater or lesser extent fully privatising their government-owned electricity businesses.
That still means Australia has a rather unique mix of private and public ownership structures for its electricity generating sector, which leads to arguments over whether the industry has too few players to produce a truly competitive market.
The mix is continuing to be shaken, with consolidation in generation leading to fewer private sector groups such as AGL and Origin owning the energy chain - from finding the resource and exploiting it right through the value chain to selling it to customers.
That consolidation has also seen the emergence of infrastructure funds, which need to continually acquire operations so that they can service high debt levels through greater revenue from businesses that have a guaranteed income base established by regulators.
Recent enthusiasm for encouraging more gas in Australia's baseload generation and the renewed debate concerning nuclear power are manifestations of one fundamental aspect of power generation in Australia - that more than 75 per cent of the electricity we use comes from coal compared to 14 per cent from natural gas, 8 per cent from renewable sources (mainly hydroelectric, wind power and bioenergy) and I per cent from oil.
According to some calculations Australia is more heavily dependent on coal for electricity than any other developed country, except for Denmark and Greece. Worldwide, coal accounts for just 40 per cent of electricity generation. Considering Australia has some of the world's largest coal reserves, this should secure our electricity generation future for centuries to come - except for the fact that coal-fired electricity is also Australia's biggest contributor to greenhouse gas emissions.
Australia is a small contributor to global greenhouse gas emissions, but coal produces large quantities of carbon dioxide, one of the main greenhouse gases.
Large base-load black coal-fired power stations are located in relatively close proximity to the extensive black coalfields in both NSW and Queensland.
brown coal-fired base-load power stations are located in Victoria's Latrobe Valley and near Collie in Western Australia's south-west, though WA has more than half its power generation system capable of using natural gas.
South Australia also relies heavily on subbituminous coal mined at Leigh Creek in the north of the state. The industry is forecast to have a strong average annualised growth rate in the next five years.
Although nuclear power provides 17 per cent of global electricity, Australia has no nuclear power stations.
According to Frank van Schagen from the Co-operative Research Centre (CRC) for Coal in Sustainable Development, options for improved coal-fired-power, generation include coal gasification, oxygenfired combustion and post-combustion capture.
Van Schagen maintains these technologies "will provide opportunities to capture and store carbon dioxide and help reduce the greenhouse impact of coal-burning. It may also be possible for coal-fired power stations to use wind and solar power to supplement, or even replace, some of the coal they burn."
Natural gas is also a fossil fuel, but it produces much less carbon dioxide per unit of electricity than coal. Gas-fired power is easier to turn on and off than coal, making it a valuable source of additional energy during peak periods.
But worldwide, if not yet in Australia, gas has increased in price substantially in recent years. Pressure is mounting for increases in Australia as world prices increase in the wake of oil price movements. This means some in the industry question the economics of future gasfired generation.
Richard Wise, from the Business Council for Sustainable Energy, predicts gas will supply 18 per cent of Australia's energy needs by 2020. The key will be to ensure maximum efficiency by using the heat generated as well as the electricity, a concept known as co-generation.
Sustainable energy options, which include some renewable technologies, are gaining strength but are still more expensive than coal and natural gas. These include wind, photovoltaic (solar), geothermal (using hot underground rocks to produce steam that can drive power station turbines) and hydroelectric. Bioenergy sources include landfill gas and bagasse (sugarcane waste) co-generation.
Wise predicts that sustainable energy options will account for one-fifth of our power generation needs by 2020. "Wind, hydroelectric, bioenergy and geothermal power are the most promising longer-term sustainable energy sources for Australia," he says.
Nuclear power has not so far been regarded as a serious option for Australia.
The world's worst nuclear accident, at Chernobyl in 1986, was a severe setback for the image of nuclear power, but 20 years on, the threat of global warming has renewed interest in nuclear power as a proven and clean source of electricity.
Prime Minister John Howard has established a nuclear power taskforce, scheduled to report by the end of the year, to undertake an objective, scientific and comprehensive review into uranium mining, processing and the contribution of nuclear energy in Australia in the longer term. Howard said Australia's energy sector has played a key role in sustained economic growth.
"Australia's ability to reliably access competitively priced power and optimise the value of our energy resources has underpinned our economic prosperity while at the same time providing an effective response to our domestic and international environmental responsibilities," he said in June.
Howard said recent developments in global energy markets had renewed international interest in nuclear energy as a technology that can help meet growing demand for electricity without the fuel and environmental costs associated with oil and gas: "A growing number of environmentalists now recognise that nuclear energy has several other advantages over fossil fuel electricity generation, including significant lower levels of air pollution and greenhouse emissions."
"Nuclear power has the lowest greenhouse gas emissions of any power generation method," according to John Bartlett from the Australian Nuclear Science and Technology Organisation (ANSTO). "Its potential use should form part of a rational debate on Australia's energy options."
The main criticisms of nuclear power relate to safety concerns such as the potential for terrorist attacks and the generation of longlived radioactive wastes.
Under the Kyoto Protocol on climate change, the Australian Government has agreed to reduce its greenhouse gas emissions between 2008 and 2012 to a level 8 per cent higher than 1990 emissions.
According to the Australian Greenhouse Office, Australia is on track to meet this target.
The CRC for Coal in Sustainable Development has estimated that if Australia were to reduce its emissions to the 1990 level by 2050, coal would account for just 64 per cent of national electricity generation, natural gas 6 per cent and hydroelectricity 4 per cent. Other renewables would need to rise to 26 per cent
The Australian Government has established a $500 million fund to support the commercial demonstration of new technologies for low carbon dioxide emissions. Every dollar must be matched by $2 from the private sector.
The holy grail is developing technology that will reduce substantially the greenhouse gas emissions from coal without dramatically increasing its cost, and thereby increasing the price of electricity to us all.
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