Australia’s most polluting coal-fired power stations, owned by providers like AGL Energy, Origin Energy and Delta Electricity, are on the way to becoming devalued assets due to their carbon intensity, a University of Oxford report says.
The report, by the Smith School of Enterprise and the Environment, projected the potential costs of closing down such facilities in guarding against unanticipated devaluation, and considered the policy benefits of such closures.
Ben Caldecott, who co-authored the report with Gerard Dericks and James Mitchell, said Australia has “by far the most carbon intensive power stations globally, the least efficient of all the major economies.”
“The International Energy Agency says that by 2020 one quarter of the world’s subcritical power stations need to be shut down. Australia makes a big contribution to that number, nearly 10 per cent of the IEA figure by 2020,” Mr Caldecott said.
Coal provides 40 per cent of the world’s electricity and 75 per cent of this is considered subcritical, the least efficient and most polluting.
In Australia, coal generates 56 per cent of electricity demand and almost 90 per cent of this is sourced from subcritical coal-fired power stations (SCPSs).
The reason SCPSs are the most polluting is their use of subcritical boilers. Operating at lower pressures and temperatures, the boilers have an inefficient steam cycle because water is present as both a gas and a liquid.
“And there is the fact that your SCPSs are much older,” said Mr Caldecott.
“The average age of Australian SCPSs is 30 years, and a good proportion of that are over 35 years. The older the power station, the less efficient it will be.”
Australia has 22 SCPSs, owned by 19 companies, and include nine of the 10 highest carbon emitters in the country.
AGL Energy, Origin Energy, Stanwell Corporation and Delta Electricity comprise 11 stations, responsible for more than half of Australia’s total SCPS capacity.
Over 45 per cent of Australia’s subcritical boilers 35 years and older are now “mothballed” due to lower-than-expected energy demand and competition from renewables.
“You’ve got an overcapacity problem in Australia, so too much power is being generated, demand for electricity is falling each year,” Mr Caldecott said.
“Some of these power stations have been put into storage, that’s what we mean by mothballing. So they can be reactivated at relatively short notice should they need to be.
He estimates around 1.5 gigawatts is currently mothballed, with a view to giving owners of those assets option value, should the market conditions improve.
In what Mr Caldecott described as “conservative” projections, the report estimated the maximum conceivable compensation for Australian SCPSs in 2015 prices would be AU$18.3billion (or AU$3.66bn per year) in a five-year period, AU$13.7billion (or AU$1.37b per year) in a 10-year period, and AU$8.4b (or AU$560 million per year) in a 15-year period.
Total compensation decreases with changing time periods because more generators reach the end of their technical lifespan before they are eligible for compensation.
“These assets, because they are the most polluting form of power generation, are more exposed to risks associated with climate change. Investors can use this research to see which companies are particularly exposed to this risk,” Mr Caldecott said.
In terms of public policy, he said advanced economies have a greater responsibility to lead the way reducing the use of subcritical stations.
“If rich economies that have old and inefficient power stations can’t shut them down early, because of climate change, how can you get the Chinese, Indonesians, Indians and the South Africans to close these things down as well?” he said.
“They have much bigger fleets … that generate lots of pollution and if we don’t get them to prematurely shut these power stations down we wont have a solution to climate change at all.”
Source: The Sydney Morning Herald