Energy Security Board for coal and gas in Australia

Date published: 2017-10-25

The Liberal/National Energy idea is simply a lifeline to non-renewable energy that will keep electricity prices high.

The 'plan/policy' is getting praise from the Guardian (Katherine Murphy 21/10/17), principally because it is a policy at all, and from a Bloomberg analysis, because it is ‘financially innovative’ (Guardian 21/10/17). It is a solution that gives a financial solution to a technical problem, empowers retailers, leaves lots of fat for the key players, but lots of bills for the consumer and slows progress on climate change.

It is so sketchy on detail and definition of various parameters that it cannot be counted as a plan or policy. It is simply a political statement.

Why Have Prices Been so High?

The existing dysfunctional system is responsible for the current high prices due principally to:

  1. The regulator permitted agencies to ‘gold plate’ the reticulation and distribution networks of poles and wires. Because they had been not permitted to so do for a long time, there was an overcompensation phase. These organisations are natural monopolies whose price structures are in part affected by the values of their networks. The extra investment permitted them to raise their charges.
  2. A National Electricity Market was created where bids were put in to supply power to the grid at 5 minute intervals, the assumption being that a market would drive prices down. In fact, in an oligopoly market, big companies gamed the system, withholding power so that the price went up at key periods. When the price went up, they could then put in the withheld capacity at a higher price. The system was made ‘fair’ in that every supplier was paid the latest (highest) price, so suppliers who had put in low bids earlier were not disadvantaged! The public and businesses consuming the power were gouged.

How Did it Work Before the 'Energy Market'?

Prior to an ‘Energy market’ being created a number of system engineers were given the job of maintaining reliable power. They had the criteria of supplying electricity reliably and at reasonable cost. They had to have a reserve of ‘spinning capacity’ and they could not overload various individual components. The State largely owned the generators and their costs were restrained by their contracts with the retailers and political pressure against high power prices. It would be possible to return to this system if the generators and high voltage grid were nationalised. The disadvantage of this arrangement was that the system was inflexible and favoured the large coal fired generators.

What is the New Scheme?

The new scheme mandates that electricity comes from a variety of sources, ‘reliable’ fossil fuel power, and renewables, which are assumed to be unreliable. The mix of sources changes over time, hence there can be a move to renewables as they as are defined as more ‘reliable’. The scheme was devised by the existing companies, particularly the thermal players, which is probably why it has so few critics. But it will lock in the cost and pricing structures which are the cause of the problem.

The conceptual problem is that the government has confused reliability and despatchability (?deliberately). Reliability is measure of whether a power source will be working over a specified time period. Despatchability is whether power can be put into the system. Coal fired power is reliable as ‘base load’ in that it can have a relatively constant output. But it is slow to vary that output, so it cannot despatch power quickly in response to a fall elsewhere, and as such is not ‘reliable’ when needed to despatch a greater quantity quickly. Coal is more expensive than renewables and the plants have to be kept going at a minimum of about 35% capacity to be able to increase, which does not happen quickly anyway. Keeping the coal plants as a ‘system spinning reserve’ effectively puts a base price on energy of about $85 per MWh, i.e. the typical wholesale price of power from a thermal plant. This makes this plan a government mandated, long term price fixing agreement.

Characteristics of Renewables

Renewable energy power systems and hydro have different characteristics. Hydro is despatchable if you have sufficient water. Australia’s lack of water means that all of our large hydro stations do not operate continuously. They are mainly used to handle short and medium length load peaks as they can respond quickly to load changes. Naturally if the water is pumped up when there is spare power they act as batteries. Hence the interest in ‘Pumped Hydro’, which just needs 2 reservoirs, one higher than the other.

Wind and Photo-Voltaic (PV) systems are not fully despatchable as their output is dependent on wind strength and sunlight. They can respond quickly to load changes. With a grid and a lot of different sites wind can be reliable overall.

A solar thermal plant uses a heliostat field of several hundred hectares of reflectors to concentrate sunlight onto a boiler mounted in a tower to heat a transfer medium, typically sodium carbonate to about 400 deg.C. The molten salt is pumped into a storage tank and then pumped through a heat exchanger to generate steam which drives a steam turbine. One such plant is planned for the head of Spencers Gulf in SA. Here the energy is stored as heat and the molten salt can be drawn from the hot tank to generate steam on demand i.e. the plant’s capacity is despatchable.

The availability of renewables in Australia is much better than the Liberals would have us believe and the ability to forecast wind in the medium term is now very good. Hence their availability is quite high.

Relative Costs

In terms of the economics, a wind farm costs about $2 Million per MW to install. A 1MW unit running at 40% capacity factor, which is less than most wind sites can achieve, will generate about 3,500MWh pa at $85 per MWh this will be $300,000. Assuming servicing the capital costs is approximately $85,000 and service and maintenance costs $84,000 this leaves a surplus of $207,000 annually- a very good financial result especially when you compare this to a thermal plant which will cost about $30 Million per MW to build and take 10 years in the building compared to about 3 years for a wind farm.

Relative Efficiency

Conventional coal and steam turbine power stations are 22-30% efficient depending on the ambient temperature and humidity. Combined cycle gas with re-used heat going into steam turbines is over 50%. Pumped hydro storage is about 60% and lithium batteries about 80%. Wind turbines are about 40% at best, PV solar about 18% and concentrated solar thermal about 20%. The efficiency of renewable is not so critical as the input cost of the energy is nil, so it only affects the initial cost. Concentrated solar thermal is quite expensive to build, like coal.

So what is the politics of this 'plan'?

Because the electricity price will be set by the needs of the old fossil fuel plants the coal owners will be happy. It will also keep the existing renewable generators happy as the high price will give them a massive profit margin. It will keep Labor happy, as they can make a magnanimous gesture of bipartisanship in the short term and they do not need to have their own plan. When they come in they can vary the ratios of ‘reliable’ fossil fuels to dribble in more renewables at a politically expedient rate.

The people who will not be happy will be the industries that will go broke because unnecessarily high power prices made them uncompetitive, and the long-suffering domestic consumers.

The plan will make it almost impossible to meet our Paris climate change commitment as it makes it difficult for new renewable generators to penetrate the market. Each new project’s viability is dependent on securing a ‘take or pay’ energy sale agreement with a wholesaler. The plan requires each wholesaler to back up any new renewables with ‘reliable’ fossil fuelled plant. This will become harder and harder as older plant is retired. Since no one wants to build the fossil fuel that is defined as ‘reliable’ back up, the plan effectively puts the brake on any new renewables, something the Lib/Nats have been doing all along.


The alternative, a national bold move to all renewable power has been suggested by the research group, Beyond Zero Emissions (BZE), the CSIRO and others. They have pointed out that Australia has a huge natural advantage in renewable energy because of this abundance of both solar and wind, but as the whole world moves to solar, we can only get the advantage of cheap power and the experience and equipment to export if we move quickly and decisively, which is exactly what we are not doing and what this expensive plan actively retards.

The alternative all renewable system would see large investments of both physical and intellectual capital in regional centres that have either good wind or solar resources a real boom for the whole country. Towns like Goulburn and Glen Innes have benefitted greatly from the wind farms built in their areas. Local land holders have benefited from the rents paid by the wind companies for their turbine sites which is a drought-proof source of income. It is extraordinary that the Nationals do not support this.

Towns like Bourke and Wilcannia and the local landholders would benefit greatly from the construction and operation of concentrated solar thermal power stations in their localities yet the Nationals, supposedly on the farmers’ side, stubbornly oppose any such innovation.

Australia’s economy and its climate change action is being held back by the coal industry, now in a cosy partnership with the existing electricity generation lobby. We need to demand action now, before this 'plan' is implemented.

The South Australian Blackout

As a post script it is worth looking at the cause of the South Australian blackout which was a comedy of errors that lead to hell. The system planning was poor as no one had considered what would happen if the interconnector went down when wind was low.

SA was getting about 40% of its electricity from wind, which had been very reliable. It was supplemented by an interconnector from the East, but the wind power had been so reliable and abundant that it was discussed whether power should be sold to the East. The other sources were the French-owned combined cycle gas station at Pelican Point, Torrens Island A & B which were conventional steam stations owned by AGL, and some smaller plant whose main function was to provide ‘black start’ power for the Torrens Island generators.

The Queensland gas companies had miscalculated the yields from the Chinchilla field and had contracted to sell more gas overseas than they had. As a result they were been forced to buy gas from SA, Amadeus gas field or anywhere. The owners of Pelican Point held a large ‘take or pay’ contract for SA gas, fixed before the current problems. As shrewd businessfolk they saw the opportunity to sell a portion of this contract at prices that offered better returns than burning it to generate power. Which they did. The high availability of wind power meant that this did not impact the SA system, so no one noticed. When the wind storm last year blew over several power lines, an incorrect setting in the wind turbine operating systems meant that these units were disconnected from the SA grid. At the time half of Torrens Island A was running and some of Pelican Point. These 2 stations became overloaded and shut down and the interconnector with Victoria tripped on overload.

The small open cycle gas turbine station at Torrens Island that was meant to provide black start for stations Torrens A or B failed to start due to poor maintenance. It took a long time for Pelican Point to start up as open cycle plant and start delivering black start power to the system. Hence the delay.

The black-out was due to poor wind turbine settings. if they had stayed connected the Torrens Island A would not have overloaded and Pelican Point would have stayed online. There was poor maintenance at the small black start station which prolonged the situation.

The Libs made renewables the culprit when in fact the renewables had been keeping SA electricity prices down and would have saved the day if they had been set up correctly.

Attribution:  This was the unbridged contents of a facebook post from Arthur Chesterfield Evans, on 25th October 2017, used with his permission.  It fits in with everything I know about our grid - energy systems. I have added html formatting options. Below is the original post using its iframe embedded facebook link.

Arthur Chesterfield Evans
The New "Energy Security Board" of Australia, is an income security board for Coal and Gas electricity suppliers in Australia.
Energy Security Board, Fossil Fuel Industry in Australia, Climate Emergency
Energy Security Board for coal and gas in Australia