The future of energy generation and storage

[sptrawler]

there is talk that origin may be looking for a sale of the plant to get it off its books.
So why announce the early closure of the plant and thus reduce its book value?
Having not held origin for about ten years, I am unfamiliar with their financials, but the last time I did hold it it was north of 12 bucks.
Just reached half that figure now.
Seems they are experts at destroying shareholder value.
Mick

Yes not a nice space to be in, when your whole mode of operation is changing to a new norm.
Coal is done, just a matter of time, gas will fill the hole until it is no longer viable.
By then the Govt will have to either compensate the operators to have the GT's on standby, or possibly buy out the at call GT's, or install more of their own new plant. IMO
The outcome will depend a lot on how successful and how cheap large scale H2 production becomes IMO. If it becomes a cheap alternative to LNG, then the private operators will probably continue with GT's.

Origin are talking about putting a 700MW battery at the site, but having a battery that requires charging and has a discharge duration of 4hours, still leaves a huge hole when you remove 2,800Mw of at call generation.
Interesting times.
@Smurf1976 will no doubt give us a great prognosis of the state of play.

 

[Humid]

The first intelligent thing you have posted IMO.

You too no emojis

 

[sptrawler]

You too no emojis

I'm giving you more credit, by not having to give you visual prompts.

 

[Smurf1976]

Is there any requirement for a supplier to replace the generation that they take out with an equivalent amount of new generation ?

No, there's no obligation on any company to be or remain in the electricity generation business.

There is however an obligation to provide notice of their intention to exit - that's what Origin are doing with this announcement, it's a legal requirement that they make it public so they're doing so.

 

[Smurf1976]

So why announce the early closure of the plant and thus reduce its book value?

The killer is the coal price having gone through the roof.

Even if the plant is written off to zero, and the workers work for free, the cost of coal is such that it's still unprofitable.

That's ultimately the trigger, bearing in mind that closure was planned for 2030 - 32 anyway so there's no real point incurring losses in the hope of a turnaround, and now they're just going through the legally required steps to exit the operation.

Also in NSW, Liddell (AGL) will close one unit about 6 weeks from now. That's a permanent closure.

Things are about to get interesting on the political front.....

 

[Smurf1976]

Realistically , will polilticians cede power to someone else, even those who know more than they do about technical issues ?

Turnbull tried that and look what happened to him.

I hope it can be done by an enlightened government at some time.

If it gets to the point of a crisis, either the lights going out or a major problem with price, then that's the point I expect the politicians will quietly disappear and let someone get on with it.

Trouble is, building this stuff from scratch takes quite some time......

 

[sptrawler]

Even the left wing press are starting to have the penny drop, it was only a couple of years ago, they were going on about Australia being laggards with renewables.
In a couple more years, they could well be bemoaning the lack of at call generation IMO, there is a hell of a balancing act going on at the moment.
Hopefully it all turns out well, time will tell, but as @Smurf1976 says, there is no place for politics or pressure groups.

Coal plant closure shows Australia at forefront of global clean energy experiment

The shift to clean energy is gaining pace as cheap renewables pump more and more cheap power into the grid, undermining the business case of old coal plants.

www.theage.com.au

Australia is at the forefront of a global experiment on how to shift an electricity grid built on coal to one dominated by renewables.
The transition to clean energy is gaining pace as Australia’s abundant wind and solar resources pump more and more cheap power into the grid, undermining the business case of old coal plants.

 

[Humid]

Even the left wing press are starting to have the penny drop, it was only a couple of years ago, they were going on about Australia being laggards with renewables.
In a couple more years, they could well be bemoaning the lack of at call generation IMO, there is a hell of a balancing act going on at the moment.
Hopefully it all turns out well, time will tell, but as @Smurf1976 says, there is no place for politics or pressure groups.

Coal plant closure shows Australia at forefront of global clean energy experiment

The shift to clean energy is gaining pace as cheap renewables pump more and more cheap power into the grid, undermining the business case of old coal plants.

www.theage.com.au

Australia is at the forefront of a global experiment on how to shift an electricity grid built on coal to one dominated by renewables.
The transition to clean energy is gaining pace as Australia’s abundant wind and solar resources pump more and more cheap power into the grid, undermining the business case of old coal plants.

Well you can't come here we're closed indefinitely

 

[sptrawler]

Well you can't come here we're closed indefinitely

We are lucky in a lot of ways, not the least being the Government owns the electrical system. ?

 

[rederob]

Australia is at the forefront of a global experiment on how to shift an electricity grid built on coal to one dominated by renewables.
The transition to clean energy is gaining pace as Australia’s abundant wind and solar resources pump more and more cheap power into the grid, undermining the business case of old coal plants.

The interesting part is that Coalition policy is about affordable energy, and with renewables that was always a given.
What there is NOT, is an actual PLAN.
All the issues have been identified, and there are lots of options on the table. But in the absence of a coherent strategy for the grid that AEMO controls we have the various States stepping in to further fragment supply.
It's been a recipe for disaster from the time I returned to post at ASF over 2 years ago, and got worse rather than better. Our saving grace has been La Nina in these years as summer maximums have been relatively subdued. That will change drastically when El Nino kick in and load shedding puts the frighteners on Sydney/Melbourne folk. Snowy 2 will still be years off so If you are in the market for a BEV, maybe consider one that has V2H ability, or buy a bidirectional home charger.

 

[sptrawler]

2022 Integrated System Plan (ISP)

AEMO’s first Integrated System Plan (ISP), which provides a whole-of-system roadmap for the development on the National Electricity Market (NEM).

aemo.com.au

2020 Integrated System Plan (ISP)

The 2020 ISP is currently under development, with a detailed timeline shown below. The consultation on scenarios, inputs and assumptions was completed in August 2019. The Draft 2020 ISP has now been released, and consultation on this document opened on 12th December 2019, along with a separate...

aemo.com.au

 

[Smurf1976]

What there is NOT, is an actual PLAN.

This above all else is the problem.

I have absolute confidence that renewable energy can be made to work and done in a manner that's reliable and reasonably economical. There are some technical hurdles still to be worked around although that's more a case of working out the best way to do it, since there's more than one way at the detail level, rather than whether it's possible as such.

What I don't have confidence in is our institutions' ability to manage it and by that I mean government itself and things created by it.

I'll admit to being somewhat of a "just do it" person but I think it's fair to say the level of politics, bureaucracy and so on does lean too far in the other direction. It leads to really obvious, straightforward things not being done because it's all too hard administratively.

Whilst AEMO does produce the Integrated System Plan, and that's a very solid piece of work as such, there's a degree of "hands tied" about doing so. AEMO's modelling what may happen and so on but doesn't have the power to "just do it" when there's some other body in the way with conflicting rules and regulations in a field where they have jurisdiction. It's those others who then become the obstacle.

 

[sptrawler]

It obviously is getting to the pointy end, when you are getting 2,800MW closure brought forward to 3 years time, IMO something appears out of whack when that isnt well co ordinated.

 

[Smurf1976]

It obviously is getting to the pointy end, when you are getting 2,800MW closure brought forward to 3 years time, IMO something appears out of whack when that isnt well co ordinated.

A big part of the problem in the industry can be summed up by noting that two CEO's have ultimately put themselves out of a job for daring to speak the truth that the future isn't with coal.

One fell victim to the federal Coalition government, the other fell victim to a Labor state government in Queensland.

Then we've got a government that on one hand has a "gas-fired recovery" as a key economic policy and which signed an agreement with the NSW state government to boost gas production in that state while on the other hand the Prime Minister personally intervenes to stop gas drilling off the coast of NSW right where gas is most needed.

And so on.

I don't intend that as being a political comment as such, and I've mentioned both major parties, but simply an observation. Government doesn't know what it wants but is insistent that it gets what it wants. Read that sentence a few times.....

End result is the industry has largely decided that the best approach is to keep the politicians out of the loop until the last possible moment. That's hard to do when it comes to building anything new but it's dead easy so far as closing existing facilities is concerned.

Hence Origin's simply followed the law to the letter. Law says 3.5 years notice of closure so they've given 3.5 years notice of closure. Done.

From a company perspective that's entirely rational, it stifles any debate and politics around it, but from a planning perspective it's a terrible way to do it from the perspective of building replacement capacity and of course things like the impact on the workforce and so on.

 

[SirRumpole]

Well, to me the question comes down to "did we (the States & Federal gov'ts) make a mistake privatising the electricity industry ?

And again, to me the answer is undoubtedly yes.

Fine, let them build renewable plants to supplement supply, but when it comes to baseload (I presume that term is still relevant, but maybe it's not) , then these assets should be in the hands of State governments who will/should make adequate plans for their replacement when the time comes, instead of just disposal without regard to continuity of supply.

This is an essential service, not a MacDonalds chain, we can do without burgers but not power.

A great example of governments hiving off responsibilities, but it will backfire in the end because voters always blame the government anyway.

 

[sptrawler]

Spot on @SirRumpole and a great example of where essential services shouldn't be given to "for profit" owners, some things should be State owned and overseen by a Federal body electrical is a great example.
The States know how they want the State to develop and have a State planning authority, so know when and where demand is going to increase.
But when they are interconnected to other states, system security and the overseeing of the grid becomes an issue.
South Australia is a good example of the requirement for the overseeing function, as from memory they got way ahead of themselves with the renewables and if they didn't have the luxury of an interstate tie could have ended up in all sorts of trouble.

It all does highlight the requirement for a body like the AEMO being given the teeth to demand that each sector toe the line, the problem with that is you can't tell private operators how and when to run their plant or close down their plant without compensating them, they are there to make money not to provide a social service.

As you say some things should always stay in public ownership, electricity, water and IMO telecommunications eg Telstra.
As time and technology moves on, the role of telecommunications is becoming more and more an essential service, as we the public become more and more dependent on it.
If you and I can see it, why the hell can't governments, is it because they think privates do it better, or they want to be able to hand on the responsibility? or want to be able to enjoy the short term sugar hit of the free cash flow to stay in office? We will probably never know.

 

[Sean K]

Well, to me the question comes down to "did we (the States & Federal gov'ts) make a mistake privatising the electricity industry ?

And again, to me the answer is undoubtedly yes.

Fine, let them build renewable plants to supplement supply, but when it comes to baseload (I presume that term is still relevant, but maybe it's not) , then these assets should be in the hands of State governments who will/should make adequate plans for their replacement when the time comes, instead of just disposal without regard to continuity of supply.

This is an essential service, not a MacDonalds chain, we can do without burgers but not power.

A great example of governments hiving off responsibilities, but it will backfire in the end because voters always blame the government anyway.

I'd even raise it to a Federal responsibility as the States should all be linked and able to cover each other in emergency, which they currently do, but some States have dropped the ball. So, Federally owned and operated and with the NEM and AEMO coordinating it. It's too vital a national asset, much like water.

 

[sptrawler]

I'd even raise it to a Federal responsibility as the States should all be linked and able to cover each other in emergency, which they currently do, but some States have dropped the ball. So, Federally owned and operated and with the NEM and AEMO coordinating it. It's too vital a national asset, much like water.

I personally think that eventually when at call generation is only a support role, for the out of the norm weather events, it will become Federally owned, there wont be enough money to be made for private enterprise to be interested.

That has already become obvious, when the Federal Government a couple of years ago, asked for expressions of interest to build and own 1,000MW of new at call generation, no company presented a proposal and is the reason Kurri Kurri is being built by Snowy.
There no doubt will be more at call generation, strategically positioned through the network, as things move on.

 

[Smurf1976]

did we (the States & Federal gov'ts) make a mistake privatising the electricity industry ?

A look at the past is perhaps somewhat revealing as to that question. A rather long post here but to answer the question of how we got to where we are:

Going right back to the start, notable points (referring to the Australian context only) both technical and organisational all ultimately lead to where we are now. This is by no means a comprehensive list, it's just whatever was the first or largest at the time and is thus of note:

1888 - First distributed electricity supply in Australia at Tamworth NSW. This was by no means the first use of electricity as such, but it was the first attempt to build a public supply from a centralised source. It was an extremely limited DC system but still, it was distributed electricity.

1895 - Launceston City Council commences public electricity supply from the Duck Reach hydro station. Notable as being the first "no questions asked" supply to anyone who wanted it, for any purpose, with charging based on metered consumption. Prior to that, in most places charges were typically based on the number of lights installed or the capacity of motors.

~

By the 1910's electricity was in somewhat common use in city CBD's and selected industries but mostly took the form of small generating facilities, owned either privately or by local government, supplying their immediate surrounds and without connection to anywhere else. Melbourne alone had by some estimates over 100 separate companies at one point, each with their own tiny systems supplying a few streets with power generated from a steam engine.

That approach of small fragmented systems is inefficient both technically and economically, indeed it goes against the very principles underlying the existence of an electricity grid in the first place.

1910 - The privately owned Hydro-Electric Power and Metallurgical Company proposes the building of a then significant hydro station and transmission line in Tasmania and commenced construction.

1911 - The privately owned Victorian Hydro-Electric Company formed with a view to developing hydro generation, transmission and bulk supply in Victoria. The company commenced site surveys etc but no actual construction took place.

1913 - The WA state government proposed a centralised power supply for Perth and commenced construction of the East Perth power station.

1914 - The Mt Lyell Mining & Railway Company, Tasmania, opens the then significant Lake Margaret power station to supply its mine, smelter and the general public of Queenstown. Noting this was the tenth largest company in Australia by capitalisation at the time - for perspective the equivalent company today in purely financial terms is Telstra.

1914 - The privately owned HEPMCo runs out of money with the Tasmanian state government deciding to take over power supply via formation of the Hydro-Electric Department, acquisition of the partly built hydro scheme, and compulsory acquisition of most privately owned electrical undertakings in the state with the notable exceptions of Launceston and Mt Lyell. Of note is the Australian Government issued dire warnings at the time regarding financial risks, the uncertain future use of electricity and so on and opposed the state's actions quite strongly.

May 1916 - The HED opens Waddamana A power station with 2 x 3.5 MW generators and 88kV transmission to Hobart. This marks the beginning of the grid as such in Australia with the first transmission line in operation.

December 1916 - East Perth power station opens with 1 x 4 MW generator, two more being added in 1917.

1918 - Victoria establishes the State Electricity Commission, being the third state government to enter the electricity industry. In doing so the still in existence Victorian Hydro-Electric Company is, for practical purposes, left with nowhere to go having not built anything in its thus far 7 years of existence and with government now taking over the industry.

1919 - Interconnection of the HED and LCC power systems in Tasmania via a new transmission line, creating the first Australian system comprising more than one physically separate generating station. Installation of new 6 MW machine at Waddamana power station.

1922 - New 7.5 MW machine installed at East Perth power station WA.

Tasmania now has 3 power stations in its grid with connection of the pre-existing steam plant at Devonport to the system. Waddamana's capacity is now 49 MW.

1923 - Victorian SEC opens 2 x 15 MW Newport B power station (Newport A being owned by the Victorian Railways for traction supply).

1924 - Yallourn A station opens with 4 x 12.5 MW and transmission to Melbourne. Victoria now has a transmission system and multiple generating sources in operation.

1926 - Municipal Council of Sydney opens Bunnerong A power station using 25 MW units, of which 7 were ultimately installed.

1931 - WA government proposes privatisation of the industry. The plan was abandoned due to lack of a buyer.

1938 - State Electricity Commission of Queensland created but others, notably Brisbane City Council and the privately owned City Electric Light, retain physical assets. SECQ does however force BCC and CEL to work as, effectively, a single entity with physical interconnection of systems implemented by 1940.

1939 - Municipal Council of Sydney opens Bunnerong B using 50 MW units of which 4 were ultimately installed. This was the largest generating unit in the world at the time.

There remained the limit for quite some time, 50 MW machines. That was a global situation with the constraint being down to physical factors not economics or the need for electricity. That resulted in a situation immediately after WW2 of rather a lot of 50 MW units being installed.

1946 - NSW and SA state governments both enter the electricity industry. SA acquires privately owned assets by force (compulsory acquisition).

1955 - First output from the Snowy scheme fed into NSW system.

1959 - NSW and Victoria systems physically interconnected.

Up to that point I think it's fair to say that government ownership had very clearly worked and had beaten private ownership so far as getting it done is concerned. The above list being only the "firsts" or other key points, there's an awful lot left out for simplicity (eg by 1960 Tasmania had 12 stations on the grid, 3 more under construction and another 10 at various stages of investigation and design to be built when required, other states same approach).

Then things started to change and the reasons have a lot to do with technology. Specifically, that generating plant suddenly became a lot bigger as the physical constraints were overcome. In the 1950's 50MW machines were still par for the course globally. Then....

1961 - 2 x 60 MW at Wallerawang B (NSW)

1961 - 2 x 100 MW at Tallawarra B (NSW)

1962 - 2 x 120 MW at Yallourn E (Victoria)

1963 - 2 x 200 MW at Vales Point A (NSW) with another added in 1964.

1966 - 1 x 275 MW at Vales Point A (NSW)

1967 - 350 MW at Munmorah (NSW) with 4 machines ultimately installed

1971 - 500 MW at Liddell (NSW) with 4 machines ultimately installed

1979 - 2 x 660 MW at Vales Point B (NSW)

In the space of less than 20 years the size of individual generating units had gone from 50 MW to 660 MW.

Just one of the two 660 MW units at Vales Point B could of itself generate more power than the 7 machines at Bunnerong A, plus the 4 machines at Bunnerong B, plus the 4 machines at each of Tallawarra A and Wallerawang A combined. One machine, half a power station, generates more than 19 machines at 4 complete power stations combined.

The problem there is that whilst they were officially electricity supply authorities, to considerable extent, especially in NSW, Victoria and Tasmania, they were better described as power station construction authorities in practice. They built power stations first and foremost, supplying electricity was just a way to make use of them.

That is a key distinction and lead directly to where we are today. NSW is the starkest example so it's the one I'll use but to be clear, the problem was not limited to that state.

The increase in size of generating units had lead by the late 1960's to a situation where installed generating plant was growing more quickly than demand, overcoming the historic problem of authorities struggling to build new plant quickly enough to cope with steadily rising consumption.

At first this wasn't a huge problem due to the existence of rather a lot of now work out and technologically outdated plant from the early days of the industry which nobody would argue against closing, indeed the problem had been with trying to keep it operational. Likewise with the Snowy scheme nearing completion, intentionally under-utilising it and allowing the reservoirs to fill was likewise a sensible, logical use of any surplus power that happened to be available. Put those two together and whilst an apparent surplus of supply was emerging, it was easily put to good use.

That approach continued through to the mid-1970's by which time obsolete plant had been shut and water storages were at good levels. That was the point where new construction needed to slow in order to be matched with future demand growth and initially it did just that, new construction did indeed slow down.

But then came the slowdown in demand growth circa 1980, thus rationally requiring that new construction slow to a crawl, in doing so bringing to an end the notion of being a power station construction authority since there simply wasn't a need to keep building overly much.

Instead well Eraring was commissioned in 1984, Bayswater in 1985-86 and finally Mt Piper was half built (2 units instead of 4) in 1993. Between them they added 6600 MW or 61% to NSW's peak generating capacity which far exceeded growth in demand at the time.

What happened next is what brings us to where are today:

3060 MW of plant was prematurely closed, equivalent to the entire Bayswater power station plus half of Mt Piper. That consisted of 2865 MW of coal plant less than 30 years old at the time, indeed most was closer to 20 years old and still effectively "new" at the time. It also included 195 MW of gas turbines that really were new, having barely been run since installation.

This occurred against a backdrop of frequent industrial action leading to restrictions and blackouts in Victoria and Queensland over the preceding years, major controversy over proposed new hydro development in Tasmania and the first ever "real terms" increase in the price of electricity to consumers in several states.

That situation taken as a whole lead to a fairly widespread perception that the industry was inefficient, poorly managed and otherwise needed "reforming". This perception coming about at a time when Australia had an extremely reformist government under Hawke as PM and Keating as Treasurer and later PM. Noting that Keating was ultimately instrumental in the emergence of the National Electricity Market.

The final nail in the coffin came circa 1990 when several states, most notably Victoria and SA, found themselves in great financial difficulty. This came at a time when the Australian Government was pursuing privatisation of assets and overseas governments were doing likewise.

And so Victoria privatised first during the mid-1990's and applied very serious pressure on other states to follow, South Australia doing so some years later. NSW privatised more recently.

Qld, Tas, NT and WA didn't privatise but they do have some degree of privately owned assets in the industry, they're not state-owned monopolies.

The other manner in which that history leads to where we are today is with so much capacity having been built at the same time, it's now all reaching end of life at the same time. Rather than NSW having had to gradually replace plant built in the 1950's and 60's in the 2000's and 2010's, it instead has a massive lump of capacity built 1979 - 86 all reaching end of life at about the same time.

Looking at all that, my basic observation is that government owned authorities are extremely good at coming up with a comprehensive plan on what needs to be done. That is their strong point. They're also extremely good at working out what to run and when to run it, it generally does beat the private sector on that one from my observations.

What they're not good at is making themselves redundant. Without the financial discipline of the private sector, there's a definite tendency to keep going with things that really don't need keeping going. That is, keeping building when there's nothing more that needs to be built. The private sector wins with that one easily.

Putting all that together, well I'll argue that neither is perfect, both can run off the rails, but that a combined approach might just be the best way forward.

Government as planner of what's built and day to day dispatch.

Private ownership that'll put the brakes on if there's no need to spend the capital.

With the right design of market that could probably be done.

 

[Smurf1976]

What they're not good at is making themselves redundant. Without the financial discipline of the private sector, there's a definite tendency to keep going with things that really don't need keeping going. That is, keeping building when there's nothing more that needs to be built. The private sector wins with that one easily.

Adding to that is that this isn't an immediate problem however.

Let the technical people loose and it'll be 20+ years before there's any risk they go too far, until then they'll just be sorting it all out and catching up.

So if the choice is the old way or the present way then, whilst the old way did become a bit of a runaway situation toward the end with overly enthusiastic construction, for the medium term at least that's not a risk, there's a lot needing to be built and the risk is very firmly on the side of not building enough rather than of building too much.

Medium term the risk is far higher that the lights go out than that there's any major excess of supply actually built. And of course there's no certainty that a central authority would repeat the same mistakes given it wouldn't likely have to deal with an unforeseen slowdown in consumption a second time around.