Why Turnbull's new energy plan may not be so good for coal – explainer

Michael Slezak
Among the various generator types, coal-fired power is the biggest security threat to the grid. Photograph: Bloomberg via Getty Images

The prime minister, Malcolm Turnbull, has no doubt been selling his new national energy guarantee to many of his colleagues by arguing it will be good for coal power.

Green groups are protesting the policy on the same basis, calling it a “dirty energy target”.

Even Origin Energy has told its shareholders that the Neg means it might need to keep the largest coal-fired power station in Australia open for longer.

The basic idea is that alongside the “emissions guarantee” there will a “reliability guarantee”. Retailers will be forced to buy power that has a relatively low emissions profile, but also buy enough “reliable power” so that they can keep the lights on.

And almost everyone is assuming that reliability guarantee will subsidise coal (as well as gas and and other dispatchable generators).

But looking at the information available – with the very big caveat that there is not much information available – there is very little reason to think that coal will benefit from the reliability guarantee.

There are two big reasons to be sceptical.

First, coal is just not particularly reliable. In fact, the security of the entire grid is designed around the possibility of a large coal generator dropping out unexpectedly – which they regularly do.

Second, all indications are that the reliability guarantee will just be regulation of the existing capacity market, where retailers pay dispatchable generators to be on standby in case they need them. And coal very rarely is able to sell those contracts.

Coal is just not that reliable

Among the various generator types, coal is the biggest security threat to the grid.

Because coal power stations are huge, when they drop out, they pose a significant threat to the entire grid – not just potentially leaving demand to outstrip supply, but the disruption of removing such a large amount of power suddenly and unexpectedly can shake the frequency and voltage of the system outside of safe operating bounds.

And they do regularly drop out, often when they are being particularly relied on – in hot weather and during periods of very high demand.

One way to see that is to look at a tally kept by the the Australian Energy Market Operator (Aemo) of what it describes as “non-credible contingency events” – that is, things it doesn’t specifically plan for.

Those mostly involve problems with transmission lines outside generators. Just looking at the list from 2017, there were seven localised events involving a range of generators – coal, wind, gas and hydro.

The two events that involve wind farms resulted in less than 30MW of supply being dropped out of the system.

When a gas plant tripped, 20 times more power was ripped out of the grid – a full 610MW. That event in South Australia nearly caused a repeat of the statewide blackout from earlier in the year. In fact, it created very similar conditions, but as a result of changes to settings on wind farms after the blackout, the system was able to ride through it without collapse.

But even that trip pales in comparison to two events on the list that involve coal, when more than a 1,000MW was dropped from the grid each time.

And that list doesn’t even include the more likely and common faults that happen inside power plants, rather than the transmission lines outside them.

The transmission faults can take out whole generators, but trips inside the plants often take out just one unit. That could happen in any generator, but since coal plants have just a few huge units, one dropped unit can cause a big disruption and makes the plant less reliable.

If the equivalent thing happens at a wind farm, one turbine might stop working, the effect of which is minimal to the farm’s output and negligible to the overall grid.

“It’s not that coal is less reliable than wind or solar,” says Dylan McConnell from the Climate and Energy College at the University of Melbourne. “It’s unreliable in a different way.”

And he stresses that coal’s unreliability can threaten the whole system. “From a security perspective, the biggest contingency that Aemo plans for is a large thermal generator tripping – the biggest that is online or producing, since it could disappear.”

How huge, centralised and unreliable coal power plants could add to a retailer’s reliability obligation is a little mysterious.

Coal power plants don’t generally provide capacity contracts

But here’s the real kicker: all currently available information suggests that the “reliability obligation” will all but explicitly rule out coal.

The Energy Security Board’s letter to the government says the reliability obligation will require retailers to buy a minimum amount of “flexible dispatchable capacity”. But most coal power plants are very inflexible – unable to turn on or off quickly.

There are also many clear indications in that letter that the “reliability obligation” will just be government regulation of the existing cap markets, in which coal barely plays a role, with the Energy Security Board saying that retailers would be required to enter into contracts with flexible, dispatchable generators – which is exactly what happens in the cap market.

In existing cap markets, retailers pay flexible generators – mostly hydro and gas – to be available and supply electricity when the spot market becomes too expensive.

When spot market prices hit more than about $300 per MWh (the cap price), those contracted flexible generators kick in and supply electricity for the cap price.

That market is unregulated at the moment and retailers buy contracts for that flexible capacity so that they aren’t exposed to the spiking wholesale rates, which can go as high as $14,000 per MWh.

But it only makes economic sense for certain generators to sell contracts like that to retailers. It needs to make sense for the generator to sit idle most of the time, but be ready to fire up at the flick of a switch. As a result, the cap market is dominated by hydro and gas.

It makes little sense for coal to sell those contracts. They are so slow to start up, that in order to be ready to fulfil such a contract, they’d already need to be on. And if they’re already on, then they might as well sell their power to the spot market during large spikes in the wholesale price.

McConnell, the energy expert from the University of Melbourne, says although it will depend on how high the reliability obligation is set, most retailers are unlikely to be affected by it.

But McConnell adds that, to the extent that it does drive further investment in generation, it is quite likely to drive investment in gas, hydro and – increasingly – battery technology.

Of course, there has been virtually no detailed information about this obligation yet and so it’s not inconceivable that it could work differently, and find some way to incentivise coal generation. But it’s hard to see how that would lower energy prices, lower emissions or increase reliability of the grid.