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Government urged to plan for coal exit

AFR 21 12 20

An injury-causing accident that shut down part of AGL Energy’s ageing Liddell coal power station is further proof of the physical and economic dangers of failing to plan for the orderly closure of the nation’s fragile coal fleet, a centre-right think tank has warned the federal and state governments.

The call on the Morrison government to initiate a nationally coordinated closure of coal power stations through an auction system is laid out in a report released today by the Blueprint Institute, a think tank founded by former advisers to ex-Liberal minister Julie Bishop and backed by former Liberal Party ministers Robert Hill and Christopher Pyne.

‘‘These clunkers aren’t going to last much longer,’’ said Blueprint’s chief economist Steve Hamilton, an assistant professor of economics at George Washington University in the US.

Four ageing coal-fired power stations are to close in NSW over the next decade, starting with Liddell in 2022-23. It will be followed by Delta’s Vales Point plant, due to close in 2029, then Origin Energy’s Eraring in 2032 and AGL’s Bayswater two years later.

‘‘It will either be an uncontrolled detonation or a controlled detonation,’’ he said. ‘‘It’s in the federal government’s political interests to front up to this task. Nothing could be worse than the uncontrolled detonation.

‘‘It’s not up to them to shut the industry down. That choice is being made for them by the states, who have committed to net zero emissions by 2050, and the generator owners. If you don’t manage that well, there will be serious political consequences – price spikes, workers out of jobs, communities not getting any compensation.’’

The think tank has proposed an auction system in their report, Phasing down gracefully: Halving electricity emissions this decade, citing examples in Britain and Germany. The suggested Coal-Generation Phasedown Mechanism has five key facets.

First, the federal government should set electricity emissions targets for 2026, 2028 and beyond 2030 to create the limits of the market – like the finite telecommunications spectrum auction – to signal to investors the need for renewables and firming, like batteries and gas, into the grid in advance of plant closures.

Second, it should offer contracts for emissions – rather than electricity supply – to favour less emissions-intensive plants and guarantee a minimum electricity supply up to contract expiration.

Third, it should implement sealedbid auctions to allocate contracts and determine relative prices to minimise economic costs. The fourth and fifth steps include compensating workers and communities.

‘‘No one is talking about it, it’s the elephant in the room,’’ Mr Hamilton said.

‘‘Just look at Liddell,’’ he said, pointing to the incident on Thursday. The unexpected shutdown at the 48-yearold plant could last until March, shredding expectations for a relatively relaxed summer for electricity supplies as prices spiked to their maximum.

The report also sought to address a key tension in the debate over the decarbonisation of the Australian power grid and coal mining jobs, emphasising that ‘‘our coal industry can thrive even as coal-fired electricity generation declines’’ because 80 per cent of the coal mined in Australia is exported.

It argues that in the short term customers will continue to buy Australian coal, but in the long term those exports will taper off because most of Australia’s major trading partners have signed up to net zero.

Underlining the energy transition, BloombergNEF’s battery price survey found prices fell 13 per cent from 2019, continuing a trend that may pave the way for electric vehicles to compete against internal combustion cars.

Source: Financial Review 21 Dec 2020

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