Queensland: Swotting up on coal

With the Queensland election underway, debate about the development of a new coal-fired power station for North Queensland re-emerged this week following a newspaper report on “leaked” analysis on an ultra-supercritical plant for North Queensland[i].

The report to the Department of Energy and Water Supply – “Ultra-Supercritical Coal Power Station, Valuation and SWOT Analysis” – considered a 750MW plant and listed what it considered to be the strengths, weaknesses, opportunities and threats (SWOT) for such a plant.

The February 2017 evaluation by Energy Edge considered a base case of a standard ultra-supercritical (USC) plant, as well as a USC plant with carbon capture and storage (CCS). It considered a plant in the Galilee Basin in North Queensland with coal supplied from the Bowen Basin and a commissioning date of July 2023.

It considered five market scenarios for the base case:

• High price: $75/MWh was considered as the status quo for electricity prices extrapolated from current levels
• Mid-price: mid electricity prices of $50/MWh
• Carbon: mid electricity price scenario with a future carbon price ($40/T CO₂e)
• High coal: high electricity prices plus export parity coal prices over the past two years, plus transportation ($4.15/GJ)
• Low price: $40/MWh

It also then considered those scenarios for a UCS with carbon capture and storage.

In assessing the post-tax cash flow for the project with a 10 per cent internal rate of return (IRR) it noted that the only scenario to exceed the IRR was the base case with a high electricity price ($75/MWh).

NPV NPAT

The analysis compared the net present value, net profit after tax (NPV NPAT) for the base case:

• Under high electricity prices, without a carbon price, it said it would be highly profitable (NPV NPAT of $1,683 million). The analysis notes that the prevailing market conditions, which are very elevated compared to historical results, if sustained would result in this outcome. The result also assumes that there is no carbon price introduced over the 40 year life of the plant; that there is no interruption to full capacity operation because of political or social factors; and that there is little impact to the underlying market price, despite the new power plant in the system, due to planned exit by existing incumbent generators.
• Under the mid electricity and high coal prices, the USC was assessed to have a NPV NPAT of $359 million and $734 million respectively.
• Under the carbon and low price scenarios, the base case has a NPV NPAT loss of $23 million and $170 million respectively.

For the USC with carbon capture and storage the analysis found:

• All of the market scenarios show a loss, with the high wholesale price scenario resulting in the smallest loss of $229 million.
• The carbon scenario with a NPV NPAT loss of $376 million results in an improvement of $1,014 million compared to a no carbon price, mid-electricity price scenario, which has an estimated loss of $1390 million loss.

SWOT Analysis

In its executive summary the report highlighted 11 primary SWOT considerations from the 31 topics it considered. These were the factors with the highest ratings under the different SWOT headings:

• Carbon emissions – for the USC base case this is seen as a critical weakness because of the risk from either future carbon pricing or hard emission limits.
• Public relations – a critical weakness. This considered the potential implications of social and political responses to climate/energy policy.
• Energy diversification and electricity security – these are said to combine the critical strength and opportunity of the base case and USC CCS. The analysis found they both provided a largescale source of storable, reliable and diversified energy supply. (The analysis notes that the plant would not provide any additional security for North Queensland from the risk of transmission network failure from extreme weather events).
• Possibility of stranded asset – this was considered the greatest threat to the plant because its full life might not be achieved due to unforeseen market conditions over a five decade period.
• Fostering of the electric vehicles sector – seen as a strong opportunity because the plant provided stable, reliable and efficient electricity supply.
• Opportunity to retire end-of-life assets – a strong opportunity to help manage the “lumpy” exit of low efficiency higher emission end-of-life assets and avoid disorderly exit.
• Solar impact in scheduled dispatch – a strong threat to the ability of the plant to maintain high capacity factors.
• Carbon and renewable regulation – a strong threat to the USC base case, but also a possible strength for a plant with CCS, depending on the carbon pricing and regulation.
• Export coal parity risk – seen as a strong threat.
• CCS limitations – strong threat.

The paper’s executive summary notes that the National Electricity Market is highly competitive with price signals and profit opportunities executed rapidly. It notes that the last coal-fired power station built was CS Energy’s Kogan Creek power station in 2007, and that in the decade since then, seven major coal-fired plants have either left the market or stated their intention to leave[ii].  It concludes: “No major coal asset has reached feasibility, financing or government approval stage during that same period.”

[i] Labor’s report backs LNP’s coal power plan, The Australian, 1 November 2017

[ii] The listed plants were: Swanbank B, Redbank, Wallerawang, Munmorah, Northern, Hazelwood and Collinsville