The Switkowski report: opportunity knocks?

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It's an unfortunate fact that energy debates are almost invariably influenced by powerful vested interests. Any change of direction or new project involves a lot of capital, a lot of jobs, strongly held views from both the left and right of the political spectrum, and not least a wonderful opportunity for some diverting wedge politics. I was therefore mildly surprised at the overall objectivity of the Switkowski Report.

Switkowski makes it crystal clear that while the community continues to allow thermal power stations to discharge CO2 without restraint, coal fired generation will be the cheapest option for electricity generation in mainland Australia. Nothing else can compete (at least without some form of subsidy).

However Her Majesty's UK Treasury has now dropped a bombshell in the form of an authoritative economic study that cannot be easily dismissed. Sir Nicholas Stern is no lightweight and neither are his sources. The question ‘should thermal power stations be allowed to continue to pollute or should they have their emission levels capped and wound back over time?' now has to be addressed.

The ramifications that flow from this question are leading to more than a little spin. If generators are not required to wind back their emissions and the evidence for global warming continues to build, public anxiety and indeed anger will undoubtedly increase — possibly exponentially.

On the other hand requiring thermal generators to contain their emissions will require either: very expensive new technology (assuming that sequestration is actually technically possible in locations near our major centres) or; purchasing CO2 offsets (in the form of new tree plantations somewhere on the planet) or; converting to natural gas (as a stop-gap solution). All of these options will add significantly to the cost of producing thermally generated electricity.

But over the last 20 years governments have corporatised and in some cases privatised their power utilities and a national competitive

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electricity market has been established. No longer do governments have the ability they once had to determine who generates electricity and by what method. It is now largely for the electricity market to decide.

And here's the rub. Add the costs of containing emissions to existing coal fired stations and as Switkowski observes a whole raft of other options become viable competitors; wind, conservation, nuclear and solar (especially if volume effects drive down the capital cost of the technology). All in all the imposition of emission caps is a ‘sovereign risk' nightmare for existing owners of thermal power stations, their coal suppliers, their financiers, metal smelters, etc, as they are all faced with a serious potential for ‘stranded assets'.

While doubtless this ‘unfortunate truth' will result in a flood of obfuscation from those adversely impacted, if the weather continues along its present path, no amount of PR spin will counter the public reaction to empty taps and ever more frequent crop failures. And not every climate sceptic has to change his/her mind before governments decide action is unavoidable.

If a decision is taken that we must get fair dinkum about CO2 reduction, the emissions of thermal power stations will have to be capped — they are a very large source of greenhouse gases and importantly clean alternative methods of generation are readily available. In other words this is the area that contains the ‘low hanging fruit'. By comparison a substantially CO2 free transport sector would be a much greater challenge.

In this respect Switkowski's baseline for comparing nuclear with the other available options is misleading, as he uses coal fired generation with unconstrained emissions as the ‘do-nothing' option. But if the decision to cap emissions is taken, this option will no longer be available. It will come down to generators adopting the lowest cost option that meets environmental standards, and the community will have to learn to live with a higher cost of electricity (be it 20% or 50% more expensive, or even higher).

What ought to be done in the national interest?

At the moment most Australians do not know whether CO2 driven climate change is a fiction, an impending catastrophe, or it's too early to say. The Government should be preparing a White Paper laying out the advice its scientific experts are providing to it. It should outline the strategy it intends to follow to address the issue. If Government believes it's too early to form a view it should be identifying the trigger points at which a policy change would become mandatory.

If Government believes that there is a problem, or that the risks are so great that mitigating actions must be taken in case it emerges as one, it must implement a system that has the effect of stabilizing and then winding back emissions. An associated timetable for CO2 emission reductions would be essential.

The electricity market would sort out the appropriate generation technology to meet both the demand and the emission caps. In all likelihood the industry would adopt a raft of solutions including wider use of natural gas, purchase of carbon credits, wind, solar and energy conservation. These are all relatively low capital cost/low risk options.

Once industry ground rules are known doubtless research into clean coal technology would rapidly accelerate. However to get beyond the research phase, Government would need to lay out in detail the regulatory frameworks it proposes to apply to CO2 sequestration. Similarly the use of nuclear reactors cannot be considered until the regulatory framework under which they would be required to operate is known. Both technologies would need to be tightly controlled from a public safety viewpoint, as both have the potential (albeit slight) to go disastrously wrong. Additionally public liability risks for both technologies would almost certainly need to be constrained by legislation. It would be difficult to put together a ‘bankable' proposition without these matters being nailed down.

So are renewables the total answer? It's not so simple. The electricity grid is a highly complex engineering asset and it's not just a question of hooking together a variety of generation sources. Some have argued that renewables are unsuited to 'base load' while others have disputed the point. Both are partially correct so some explanation for the reader is required.

Typically the total load on any electricity grid oscillates above what is known as ‘base load'. To a significant extent that base load derives from 24 hour by 7 day industrial operations. Thermal power stations (coal fired and nuclear) work at their highest efficiency when they are delivering close to maximum output on a constant basis. Hence they are said to be ideal for meeting base load. Gas turbines and hydro can be bought to full power very quickly, hence they are said to be ideal for peaking power.

But electrical energy no matter how it is generated is just that, and when renewables are contributing into the grid, they are supporting both ‘base load' and ‘peak load' equally. However without some form of supplementary storage system (pumped storage hydro scheme or batteries, etc), the output from renewables by their nature is variable and will not necessarily be able to meet the load on a second by second basis. System control therefore has to be able to fill the shortfall more or less instantaneously and without very large amounts of hydro this means that substantial amounts of thermal generation has to be on line and available for instantaneous additional input (so called “spinning reserve”). Additionally there are other more esoteric technical issues (such as reactive load), transmission line constraints, system stability, etc, that combine to limit the amount of renewables that can be accepted by the grid.

As a result of this limit, a substantial amount of thermal generation will probably always be needed. Hence, if an international decision is taken to wind CO2 emissions down to the point where atmospheric CO2 concentrations return to current levels, the size of the challenge is such that unless CO2 sequestration proves universally practical it is difficult to see how widespread use of nuclear power could be avoided.

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